Firm A finds it very expensive to reduce its sulfur dioxide emissions,while Firm B finds it very cheap to reduce its sulfur dioxide emissions.If a program of tradable pollution permits was enacted,we would most likely see

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Tradable pollution permits would allow Firm B to sell its excess permits to Firm A, who would purchase them as it is cheaper than reducing its own emissions. This would allow Firm B to earn a profit while still reducing overall emissions. Firm A would have an incentive to purchase the permits rather than reduce its emissions at a higher cost. Therefore, Firm B would sell its permit to Firm A.

Firm a Finds It Very Expensive to Reduce Its Sulfur