Anyone can purchase sulfur dioxide emission allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which they subsequently destroy).
As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever.
Source for quote: Randall Edwards, Dear Santa: Please Bring Me Sulfur Dioxide for Christmas, Columbus Dispatch, December 19, 1999.
What would be the impact on the price of the emission allowances in the market if more people buy sulfur emission allowances and destroy them?
A) The price falls to zero.
B) The price rises.
C) The price falls but not to zero.
D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed.
Question 2
If a firm has an incentive to increase supply now and decrease supply in the future, then the firm expects that the
A) demand for the product will be lower in the future than it is today.
B) price of its product will be higher in the future than it is today.
C) price of its product will be lower in the future than it is today.
D) price of inputs will be lower in the future than they are today.
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