Question

A system of marketable permits is used to reduce acid rain caused by emissions from electric power utilities. Which of the following statements is true?

A) Market forces determine both the demand for marketable permits and their supply.
B) Public choice determines both the demand for marketable permits and their supply.
C) Market forces determine the demand for marketable permits, and property rights determine their supply.
D) Property rights determine the demand for marketable permits, and the government determines their supply.
E) Market forces determine the demand for marketable permits, and the government determines their supply."

Answer 1

(E) Market forces determine the demand for marketable permits, and the government determines their supply.

Step-by-step explanation:

The correct answer is E) Market forces determine the demand for marketable permits, and the government determines their supply.

In the case of the system of marketable permits used to reduce acid rain caused by emissions from electric power utilities, market forces such as supply and demand determine the price and quantity of permits in the market. Companies that find it least expensive to reduce pollution will reduce it the most by buying permits.

On the other hand, the government determines the number of permits available for sale, setting a limit on the total quantity of pollution allowed.