Marketable pollution permits are a method of government intervention to prevent externalities whereby a government-issued permit allows a firm to pollute the environment up to the firm's private marginal cost.

Question

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Marketable pollution permits allow firms to emit a certain amount of pollution and can be bought and sold among firms, but they do not allow pollution up to a firm's private marginal cost. Instead, they aim to reduce overall pollution in a cost-effective manner by allocating a limited number of permits for a certain level of total pollution.

Marketable Pollution Permits Are a Method of Government Intervention to Prevent