Which of the following answers best explains how the market for tradeable allowances in pollution works?
A) Firms are given a particular dollar subsidy value to clean up pollution, and they can trade these subsidies between themselves if they fall below or surpass the limits.
B) Firms are taxed a particular percentage rate according to how much they pollute, and they can trade the pollutants to reduce the effective tax rates they pay.
C) Firms are required to stick to particular production levels, and if they go beyond these production levels, they are charged a percentage of their profits.
D) Firms are given a particular allowance amount of pollutants and if they fall below or surpass these targets they can trade their available allowances with other firms.

Question

Quizplus · Accepted Answer

In a market for tradeable allowances in pollution, firms are given a particular allowance amount of pollutants and can trade these allowances with other firms if they fall below or surpass their targets. This system creates an incentive for firms to reduce emissions as they can sell unused allowances to other firms that need them.

Which of the Following Answers Best Explains How the Market