Author Question: How are cap-and-trade schemes designed to reduce emissions? What will be an ideal ... (Read 103 times)

Haya94 · **on:** Jun 29, 2018

How are cap-and-trade schemes designed to reduce emissions?

What will be an ideal response?

Question 2

Comment on the following statement: If the provision of public goods was left to private firms, the outcome would be more efficient than what occurs when the government provides them.

What will be an ideal response?

randomguy133 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A cap-and-trade scheme is a market-based approach to setting the quantity of pollution to the socially optimal level. Polluting firms are given a number of permits for pollution, usually based on their historical levels of pollution. Firms that find it relatively cheaper to reduce pollution would do so and sell their extra permits to firms that find it expensive to reduce pollution. Becausethe number of permits is fixed, total emissions cannot exceed a certain level. Under cap-and-trade schemes, the marginal cost of pollution abatement is equalized across firms.
A-head: ECONOMICS OF THE ENVIRONMENT
Concept: Cap-and-trade schemes

Answer to Question 2

The statement is false. If the provision of public goods was left to private firms, the public goods would generally not be produced. If these goods have any value to households, this outcome would not be efficient at all. On the other hand, if the government is able to tax households and then provide the goods, a more efficient situation may result.