The following graph shows the optimal allocation of pollution rights to firms polluting a river. If the government sells the right to pollute a river, _____. Figure 17.5 A)firms will emit Q₁ units of the pollutant at a price of P₀ each B)firms will emit Q₂ units of the pollutant at a price of P₀ each C)firms will emit Q₀ units of the pollutant at a price of P₃ each D)firms will emit Q₁ units of the pollutant at a price of P₁ each E)firms will emit Q₂ units of the pollutant at a price of P₃ each

Question

Quizplus · Accepted Answer

The optimal allocation of pollution rights is shown by the intersection of the marginal social cost (MSC) and marginal private cost (MPC) curves, which occurs at point E. At point E, the quantity of pollution emitted is Q₁ and the price firms will pay for each unit of pollution is P₁. Therefore, the correct answer is D – firms will emit Q₁ units of the pollutant at a price of P₁ each.

The Following Graph Shows the Optimal Allocation of Pollution Rights