When tradable allowances are used to correct a negative externality in a market, the outcome:
A)limits the quantity bought and sold to the efficient level.
B)maximizes surplus.
C)is efficient.
D)All of these are true.

Question

Quizplus · Accepted Answer

Tradable allowances correct a negative externality by limiting the quantity of the externality-producing activity to an efficient level, thereby maximizing surplus and ensuring an efficient outcome. This approach aligns with the principles of environmental economics, where the goal is to achieve an optimal allocation of resources while minimizing the impact of externalities.

When Tradable Allowances Are Used to Correct a Negative Externality