Which of the following statements is correct about a market in which pollution is emitted?
A)Both corrective taxes and pollution permits move the market toward the social optimum.
B)Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum.
C)Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum.
D)Neither corrective taxes nor pollution permits move the market toward the social optimum.

Question

Quizplus · Accepted Answer

Both corrective taxes and pollution permits are market-based mechanisms that create incentives for firms to reduce pollution. Corrective taxes increase the cost of pollution, while pollution permits create a market for pollution rights. Both of these mechanisms move the market toward the social optimum in which the marginal cost of reducing pollution is equal to the marginal benefit of reducing pollution.

Which of the Following Statements Is Correct About a Market