When one firm sells its pollution permit to another firm,
A) the total amount of pollution generated rises.
B) both firms benefit.
C) the government determines the price of the permit.
D) all of the above

Question

Quizplus · Accepted Answer

When one firm sells its pollution permit to another firm, it allows the second firm to emit more pollution while the first firm limits its own pollution. This benefits both firms by allowing the second firm to continue with production and the first firm to make a profit from selling its permit. The total amount of pollution generated remains the same or decreases through a government-mandated limit on the number of permits available. The price of the permit is determined by the market, where the supply and demand of permits dictate the price. Therefore, choice B is the correct answer.

When One Firm Sells Its Pollution Permit to Another Firm