The figure given below shows the demand for permits and the maximum permissible level of pollution. Figure 13.4 In the figure,
The downward sloping line is the demand curve of permits;
The vertical line denotes the maximum permissible limit of pollution.
-Refer to Figure 13.4.Suppose the government wishes to reduce pollution to a quantity of Q_b.If it sells marketable pollution permits at a quantity of Q_bthen:

Question

The figure given below shows the demand for permits and the maximum permissible level of pollution. Figure 13.4

In the figure,
The downward sloping line is the demand curve of permits;
The vertical line denotes the maximum permissible limit of pollution.
-Refer to Figure 13.4.Suppose the government wishes to reduce pollution to a quantity of Q_b.If it sells marketable pollution permits at a quantity of Q_bthen:

Quizplus · Accepted Answer

If the government sells marketable pollution permits at a quantity of Q_b, the firms will bid the price of the permits up to a price of P_b, which is the intersection point of the demand curve of permits and the vertical line denoting the maximum permissible limit of pollution at Q_b. At this price, Q_b pollution will result because firms will only purchase permits up to the quantity of pollution they are permitted to produce.

The Figure Given Below Shows the Demand for Permits and the Maximum