Suppose Jonesʹ company and Smithʹs company both pollute. Under a system of marketable pollution permits, which of the following must be true in order for Smith and Jones to benefit from trading the right to pollute?
A)Smith and Jones must be able to reduce pollution at exactly the same cost.
B)Smith and Jones must have different abatement costs.
C)Smith and Jones must have a social conscience and must be devoted to pollution abatement.
D)The government must direct Smith and Jones toward beneficial trades.

Question

Quizplus · Accepted Answer

Smith and Jones must have different abatement costs for trading to be beneficial, as it allows the company with lower abatement costs to sell permits to the company with higher abatement costs, leading to cost savings for both.

Suppose Jonesʹ Company and Smithʹs Company Both Pollute