What results once tradable pollution permits have been allocated to firms
A)The government controls the price of permits.
B)Firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
C)The value of pollution-saving technology is always lower than the market value of a pollution permit.
D)The total amount of pollution governed by the permit will always decrease.

Question

Quizplus · Accepted Answer

Firms will prioritize reducing pollution through cheaper options first, but for those that can only reduce pollution at higher costs, buying permits will be more cost-effective. Therefore, firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.

Answer: D 
 Tradable pollution permits are designed to decrease the total amount of pollution over time. As firms are allocated permits, they must weigh the cost of reducing pollution against the cost of buying additional permits. This incentivizes firms to reduce pollution as much as possible, since this saves them money in the long run. Therefore, the total amount of pollution governed by the permit will always decrease as firms work to minimize their emissions.

What Results Once Tradable Pollution Permits Have Been Allocated to Firms