Which of the following is a difference between corrective taxes and tradable pollution permits?
A)Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy.
B)With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution.
C)With corrective taxes firms pay for pollution; with tradable pollution permits firms do not.
D)Corrective taxes internalize the pollution externality while tradable pollution permits do not.

Question

Quizplus · Accepted Answer

Corrective taxes involve the government setting a price on pollution, while tradable pollution permits allow the market to determine the price through supply and demand. This means that firms can decide whether to reduce their pollution or purchase permits from other firms, depending on which option is more cost-effective for them. Therefore, B is the correct answer. A is incorrect because both corrective taxes and tradable pollution permits are market-based solutions. C is incorrect because firms do have to pay for permits in the tradable permit system. D is incorrect because both corrective taxes and tradable pollution permits internalize the pollution externality in different ways.

Which of the Following Is a Difference Between Corrective Taxes