Which of the following is true regarding tradable pollution permits and Pigovian taxes?
A) Pigovian taxes shift the demand curve for the pollution to the left and so lead to a more efficient market solution.
B) Pigovian taxes and tradable pollution permits create an efficient market for pollution.
C) Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost.
D) To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights.
E) Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.

Question

Quizplus · Accepted Answer

Pigovian taxes and tradable pollution permits both aim to internalize the externality of pollution, creating an efficient market solution by assigning a cost to pollution and allowing firms to choose the most cost-effective way to reduce emissions.

Which of the Following Is True Regarding Tradable Pollution Permits