Once the tradable pollution permits have been issued to firms,
A) each firm will reduce the level of pollution it generates.
B) the government determines the price of the permits.
C) firms with the highest cost of pollution abatement will have the greatest willingness to pay for the permits.
D) firms with very low pollution abatement costs will purchase more permits.

Question

Quizplus · Accepted Answer

Firms with the highest cost of pollution abatement will have the greatest willingness to pay for the permits. This is because they can save money by purchasing permits instead of investing in costly pollution abatement technologies. The market price of the permits will be determined by supply and demand, which will vary depending on the number of permits available and the level of pollution reduction required. The government may set a minimum price for permits, but the actual price will be determined by the market. Firms with very low pollution abatement costs may not need to purchase many permits, as they can easily reduce their emissions without incurring significant costs. However, they may still choose to purchase permits if it is cheaper than investing in new technologies.

Once the Tradable Pollution Permits Have Been Issued to Firms