Under a system of transferable pollution rights, which of the following firms is most likely to purchase a $500 permit to emit a ton of pollutants in to the atmosphere?
A)a non-polluting firm
B)a polluting firm that can reduce emissions at a cost of $500 per ton
C)a polluting firm that can reduce emissions at a cost of $200 per ton
D)a polluting firm that can reduce emissions at a cost of $600 per ton

Question

Under a system of transferable pollution rights, which of the following firms is most likely to purchase a $500 permit to emit a ton of pollutants in to the atmosphere?
A)​a non-polluting firm
B)​a polluting firm that can reduce emissions at a cost of $500 per ton
C)​a polluting firm that can reduce emissions at a cost of $200 per ton
D)​a polluting firm that can reduce emissions at a cost of $600 per ton

Quizplus · Accepted Answer

A firm that faces a higher cost ($600) to reduce emissions than the cost of the permit ($500) would find it more economical to purchase the permit rather than reduce emissions.

Under a System of Transferable Pollution Rights, Which of the Following