In a competitive market for transferable discharge permits, the demand curve is equal to
A) the aggregate supply curve for all firms supplying permits.
B) the aggregate marginal abatement cost functions of all the firms participating in the market.
C) the aggregate production curve for all firms participating in the market.
D) the aggregate emissions curve for all firms participating in the market.

Question

Quizplus · Accepted Answer

In a competitive market for transferable discharge permits, the demand curve reflects the marginal benefit of emissions at each level of emissions reduction, which is equivalent to the marginal abatement cost (MAC) function for firms. The aggregate MAC functions of all firms participating in the market determine the demand curve for permits. Therefore, Option B is the correct choice. Option A, C, and D are incorrect as they do not represent the demand curve in a transferable discharge permit market.

In a Competitive Market for Transferable Discharge Permits, the Demand