Choose the statement that is incorrect.
A)Firms that have a high marginal abatement cost sell pollution permits.
B)A cap is an upper limit.
C)A cap is a pollution quota.
D)A government that uses cap-and-trade must first estimate the efficient quantity of pollution and set the overall cap at that level.
E)The government solves the problem of allocating the cap by making an initial distribution of the cap across firms and allowing them to trade in a market for pollution permits.

Question

Quizplus · Accepted Answer

Firms that have a high marginal abatement cost are likely to buy pollution permits instead of selling them, as it would be more costly for them to reduce their own pollution levels. Therefore, the statement that firms with high marginal abatement costs sell pollution permits is incorrect.

Choose the Statement That Is Incorrect