Figure 10-7

-Refer to Figure 10-7.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?
A)Pᴮ must be equivalent to the corrective tax.
B)Qᴬ must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)The equilibrium price and quantity of pollution must be the same in both graphs.
D)The amount of pollution emitted by each firm must be the same.

Question

Figure 10-7
 
-Refer to Figure 10-7.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?
A)Pᴮ must be equivalent to the corrective tax. 
B)Qᴬ must be equivalent to the amount of pollution allowed to the pollution permit holders. 
C)The equilibrium price and quantity of pollution must be the same in both graphs. 
D)The amount of pollution emitted by each firm must be the same.

Quizplus · Accepted Answer

The amount of pollution emitted by each firm does not necessarily have to be the same in both the corrective tax and pollution permit systems. In the corrective tax system, each firm has an incentive to reduce its pollution to the same level as that which would be achieved under the pollution permit system. However, the actual level of pollution emitted by each firm may still vary depending on their production costs and abatement technologies. As long as the total amount of pollution is equivalent, the two systems will have the same effect on the market outcome. Therefore, D is not necessary.

Figure 10-7 -Refer to Figure 10-7.Which of the Following Is Not Necessary