With transferrable emissions permits, firms must have permits to generate emissions. If a firm emits less pollution than its permits allow, it can sell its leftover permits to another firm that wishes to emit more pollutions than its permits allow. Comment on the following: “These permits have the advantages of both standards and fees, therefore, they may be the best technique of controlling pollution.” (Hint: How do transferrable emissions permits reflect on each firm’s individual abatement costs?)

With transferrable emissions permits, firms must have permits to generate emissions. If a firm emits less pollution than its permits allow, it can sell its leftover permits to another firm that wishes to emit more pollutions than its permits allow. Comment on the following: “These permits have the advantages of both standards and fees, therefore, they may be the best technique of controlling pollution.” (Hint: How do transferrable emissions permits reflect on each firm’s individual abatement costs?)

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 5QFR

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Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
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Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two methods: Methods to Reduce Pollution 1. The government imposes pollution standards using regulation. 2. The government issues tradable pollution permits. The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm…
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