The government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?
A)Pollution will be created by those least willing and able to pay the damages.
B)Pollution will be created by those most willing and able to pay for the right to pollute.
C)The funds collected by the government will be enough to compensate any individual harmed by the pollution.
D)Pollution will increase from zero to 1,000 units per day.
E)There will be no incentive for polluters to try to sneak emissions past government monitoring devices.

Question

The government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?​
A)Pollution will be created by those least willing and able to pay the damages.
B)Pollution will be created by those most willing and able to pay for the right to pollute.
C)The funds collected by the government will be enough to compensate any individual harmed by the pollution.
D)Pollution will increase from zero to 1,000 units per day.
E)There will be no incentive for polluters to try to sneak emissions past government monitoring devices.

Quizplus · Accepted Answer

The sale of transferable rights to emit pollution creates a market for pollution permits, where the highest bidders will be those who are most willing and able to pay for the right to pollute. This allows for the efficient allocation of pollution among polluters. Those who can reduce pollution at a lower cost will do so and sell their unused permits, while those who cannot reduce pollution at a lower cost will buy permits to continue polluting. This system also creates an economic incentive for firms to reduce pollution.

The Government Passes a New Law Allowing Only 1,000 Tons