The use of chlorofluorocarbons in refrigerators and air conditioners is alleged to cause the destruction of the ozone layer that surrounds the earth and protects humans from ultraviolet radiation.Output of this substance has been restricted by a licensing system where producers have to bid in the open market for licenses to produce them in specified quantities.This is an example of dealing with externalities by
A)voluntary compliance.
B)direct controls.
C)taxes.
D)cap-and-trade.

Question

Quizplus · Accepted Answer

The use of cap-and-trade where producers bid for licenses to produce a limited amount of chlorofluorocarbons is an example of dealing with externalities. This system incentivizes producers to reduce their production of harmful substances and rewards those who do so by allowing them to sell their unused licenses to those who exceed their limit.

The Use of Chlorofluorocarbons in Refrigerators and Air Conditioners Is