Final answer:
Automotive assembly plants emit particulate matter as a waste product, generating negative externalities for society. To correct for this, taxes and tradable permits are commonly used approaches. Taxes impose a charge on the quantity of pollution emitted by firms, while tradable permits allow firms to emit a certain amount of pollution based on permits they hold and can trade.
Step-by-step explanation:
Automotive assembly plants emit particulate matter as a waste product, which generates a cost to society that is not paid for by the plants themselves. This is known as a negative externality, where a third party suffers from a market transaction by others. To correct for negative externalities, two common approaches are taxes and tradable permits.
A pollution charge, also called a pollution tax, is a tax imposed on the quantity of pollution emitted by a firm. It aims to reduce emissions by making firms internalize the cost of pollution. By increasing the cost of production, the tax incentivizes firms to reduce pollution levels. However, taxes may not be the most effective solution for cases where multiple small polluters are involved, such as emissions from car engines.
Tradable permits, on the other hand, allow firms to emit a certain amount of pollution based on the number of permits they hold. Firms with excess permits can sell them to other firms that need more permits to emit their pollution. This market-based approach provides flexibility and incentives for firms to reduce pollution levels. Tradable permits can be seen as a form of improved property rights, where firms have the right to emit a certain amount of pollution without infringing on the rights of others.