Why are taxes on pollutants and tradeable allowances considered to have similar effects in solving externality problems?
A) The companies who are taxed are also simultaneously subject to the allowances of pollutants.
B) They both reduce pollution of exactly the same types of pollutants.
C) They both bring markets closer to the efficient quantity.
D) Companies can trade the taxes on pollutants just as they trade the allowances on pollutant amounts.

Question

Quizplus · Accepted Answer

Both taxes on pollutants and tradeable allowances aim to internalize the externality by putting a price on pollution, which brings the market closer to the socially efficient quantity. Taxes and allowances provide incentives for firms to reduce pollution, and they both generate revenues for the government. However, they differ in implementation and outcomes, as taxes do not guarantee a certain level of pollution reduction, while tradeable allowances allow for flexibility in the allocation of pollution reduction efforts among firms.

Why Are Taxes on Pollutants and Tradeable Allowances Considered to Have