When one firm sells its pollution permit to another firm:
A)both firms benefit
B)the total amount of pollution remains the same
C)social welfare is enhanced
D)all of the above occur

Question

Quizplus · Accepted Answer

When one firm sells its pollution permit to another firm, both firms benefit as the selling firm gains financially and the buying firm gains the ability to pollute legally. The total amount of pollution remains the same because pollution permits cap the total amount of allowable pollution, and trading permits does not increase this cap. Social welfare is enhanced because the permits allow pollution to be reduced in the most cost-effective way, ensuring that firms that can reduce pollution at lower costs do so, while those for whom reduction is more expensive can continue operating by buying permits. This system encourages overall economic efficiency while maintaining environmental standards.

When One Firm Sells Its Pollution Permit to Another Firm