Question

Once tradable pollution permits have been allocated to firms:

a. the Coase theorem is no longer applicable as a solution to reducing pollution.

b. the government controls the price of permits.

c. the value of pollution-saving technology will be lower than the market value of a pollution permit.

d. firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.

Answer 1

Answer: D.

firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.

Explanation: Tradable pollution permits are so-called cap and trade schemes. They give companies a legal right to pollute a certain amount per fixed time span. Firms that pollute less can then sell their leftover pollution permits to firms that pollute more. Credits are traded within defined trading areas.

Pollution permits, e.g. carbon trading schemes where firms are given the right to pollute a certain amount; these permits can be traded with other firms. Regulation. Limits on a number of pollutants that can be discarded into the atmosphere.