Question

When the government issues marketable permits___

A) each firm buys or sells permits until its marginal benefit from polluting equals the market price of a permit.

B) firms that have a low marginal cost of reducing pollution sell their permits, and firms that have a high marginal cost of reducing pollution buy permits.

C) the incentive to pollute is greater than when the government sets emission charges.

D) the price at which firms buy and sell permits is set by the government.

E) firms that have a high marginal cost of reducing pollution sell their permits, and firms that have a low marginal cost of reducing pollution buy permits.

Answer 1

When the government issues marketable permits, each firm buys or sells permits until its marginal benefit from polluting equals the market price of a permit. Firms that have a low marginal cost of reducing pollution sell their permits, and firms that have a high marginal cost of reducing pollution buy permits.

Step-by-step explanation:

When the government issues marketable permits, each firm buys or sells permits until its marginal benefit from polluting equals the market price of a permit. This means that firms that have a low marginal cost of reducing pollution will sell their permits, while firms that have a high marginal cost of reducing pollution will buy permits. The goal is to align the economic incentives of firms with the goal of reducing pollution.