One advantage of allowing a market for pollution permits to control the total amount of pollution released in an area is that:
A)the government knows exactly how much each firm is allowed to pollute
B)government revenue from the sale of permits is greater than revenue from a Pigovian tax
C)the initial allocation of permits to firms does not affect the efficiency of the market
D)firms will work together to eventually eliminate pollution

Question

Quizplus · Accepted Answer

Allowing a market for pollution permits ensures that the total amount of pollution released in an area is controlled efficiently. The permits are allocated to firms in such a way that the total amount of pollution allowed is within the limit set by the government. The initial allocation of permits to firms does not affect the efficiency of the market, as firms can trade permits amongst themselves to attain the most efficient allocation of pollution. Thus, by allowing a market for pollution permits to control pollution, the government can achieve its desired environmental goal without any intervention in the market.

One Advantage of Allowing a Market for Pollution Permits to Control