Figure 10-15
-Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?
A) PB must be equivalent to the corrective tax.
B) QA must be equivalent to the amount of pollution allowed to the pollution permit holders.
C) The equilibrium price and quantity of pollution must be the same in both graphs.
D) The amount of pollution emitted by each firm must be the same.

Question

Figure 10-15 
-Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?
A) PB must be equivalent to the corrective tax. 
B) QA must be equivalent to the amount of pollution allowed to the pollution permit holders. 
C) The equilibrium price and quantity of pollution must be the same in both graphs. 
D) The amount of pollution emitted by each firm must be the same.

Quizplus · Accepted Answer

The amount of pollution emitted by each firm does not need to be the same for the corrective tax and pollution permit to have equivalent effects. The tax and permit both aim to achieve a socially optimal level of pollution, but they differ in how they allocate the cost of achieving it among firms. The tax imposes a monetary cost on firms for each unit of pollution emitted, while the permit sets a limit on total pollution allowed and lets firms trade permits among themselves. As long as the equilibrium price and quantity of pollution are the same for both policies, either can achieve the socially optimal outcome regardless of how pollution is distributed among firms.

Figure 10-15 -Refer to Figure 10-15. Which of the Following Is Not