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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Suppose that the government decides to issue tradable permits for a certain form of pollution.

a. Does it matter for economic efficiency whether the government distributes or auctions the permits? Why or why not?

b. If the government chooses to distribute the permits, does the allocation of permits among firms matter for efficiency? Explain.

Sub part (a):

To determine
The role of tradable pollution permit in efficiency.

Explanation

The market allocates the right to pollute efficiently. Then, the permits finally end up in the hands of some firms who pollute...

Sub part (b):

To determine
The role of tradable pollution permit in efficiency.

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