Issuing marketable permits to firms that produce a product with external costs will give the firms the incentive to
A) declare bankruptcy.
B) buy and sell the permits amongst themselves.
C) escape the problem completely.
D) quit producing the output.
E) increase the external cost because they no longer need to deal with the externality.

Question

Quizplus · Accepted Answer

Marketable permits give firms an incentive to reduce their pollution levels so they can sell their unused permits to other firms. This creates a market for pollution permits, making emissions reduction more cost-effective and efficient. Therefore, firms will buy and sell the permits amongst themselves.

Issuing Marketable Permits to Firms That Produce a Product with External