What are marketable permits? Suppose there are two firms in an area, each emitting tons of sulfur. The government decides on a target level of 200 tons of sulfur, and gives each firm a permit to emit 100 tons of sulfur
Suppose Firm A is very efficient and can reduce pollution by 100 tons with an abatement cost of $500. Firm B has an older plant, so it will cost Firm B $1,000 to reduce emissions by 100 tons. What will occur with marketable permits?
Marketable permits are a government issued permit that allows a firm to emit a certain amount of pollution. Firms are allowed to buy and sell these permits.
Firm A can reduce pollution by 100 tons with an abatement cost of $500, while it costs Firm B $1,000 for the same reduction. Marketable permits can be bought and sold. Hence Firm A can reduce its emissions at the cost of $500 and sell its permit to Firm B for some price higher than $500. Firm B has an incentive to buy the permit for any price less than $1,000 rather than reduce its emissions at the cost of $1,000. Hence with marketable permits, Firm A will sell its permit to Firm B.
You might also like to view...
When DVDs and hamburgers were the same price, Mavis consumed 3 hamburgers and 5 DVDs, and Mavis received 10 utils from the last hamburger and 15 utils from the last DVD consumed. What should be Mavis' consumption strategy?
A) consume more DVDs and fewer burgers B) consume more burgers and fewer DVDs C) consume more of both items D) consume less of both items
A “conservative” would most likely argue in favor of
A. tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. B. tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. C. tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. D. spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary.