Once tradable pollution permits have been allocated to firms,
A)the government controls the price of permits.
B)firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
C)the value of pollution-saving technology will be lower than the market value of a pollution permit.
D)the Coase theorem is no longer applicable as a solution to reducing pollution.

Question

Quizplus · Accepted Answer

Once tradable pollution permits have been allocated to firms, those that can reduce pollution only at high cost will be willing to pay the most for the pollution permits. This allows the firms that can reduce pollution at a lower cost to sell their unused permits to those who need them, promoting cost-effectiveness and market efficiency. The government does not control the price of permits, and the Coase theorem can still be applicable as a solution to reducing pollution through private bargaining. The value of pollution-saving technology may or may not be lower than the market value of a pollution permit, as it depends on the specific circumstances and costs involved.

Once Tradable Pollution Permits Have Been Allocated to Firms