Tradable pollution permits
A) have prices that are set by the government.
B) will be more valuable to firms that can reduce pollution only at high costs.
C) are likely to create a higher level of total pollution.
D) are less desirable than corrective taxes in reducing pollution.

Question

Quizplus · Accepted Answer

Tradable pollution permits are more valuable to firms that can reduce pollution only at high costs because they can purchase permits from firms that can reduce pollution at lower costs. This allows for pollution reductions to occur in the most efficient manner. However, this does not necessarily mean that total pollution will increase, as the total number of permits issued can be limited by the government to ensure that overall pollution levels are reduced. Tradable pollution permits are also a viable alternative to corrective taxes, as they provide an incentive for firms to reduce pollution while allowing for flexibility in how they achieve those reductions.

Tradable Pollution Permits