This topic contains a solution. Click here to go to the answer

Author Question: What is a cap-and-trade policy? (Be certain to mention marketable permits.) Suppose there are two ... (Read 128 times)

123654777

  • Hero Member
  • *****
  • Posts: 585
What is a cap-and-trade policy? (Be certain to mention 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?

Question 2

A price cap regulation ________.
 
  A) is illegal
  B) is a price floor
  C) is a price ceiling
  D) encourages a firm to operate inefficiently



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

spencer.martell

  • Sr. Member
  • ****
  • Posts: 342
Answer to Question 1

A cap-and-trade policy involves the government issuing marketable permits to firms that allow 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.

Answer to Question 2

C





 

Did you know?

Inotropic therapy does not have a role in the treatment of most heart failure patients. These drugs can make patients feel and function better but usually do not lengthen the predicted length of their lives.

Did you know?

The most dangerous mercury compound, dimethyl mercury, is so toxic that even a few microliters spilled on the skin can cause death. Mercury has been shown to accumulate in higher amounts in the following types of fish than other types: swordfish, shark, mackerel, tilefish, crab, and tuna.

Did you know?

Most strokes are caused when blood clots move to a blood vessel in the brain and block blood flow to that area. Thrombolytic therapy can be used to dissolve the clot quickly. If given within 3 hours of the first stroke symptoms, this therapy can help limit stroke damage and disability.

Did you know?

Adolescents often feel clumsy during puberty because during this time of development, their hands and feet grow faster than their arms and legs do. The body is therefore out of proportion. One out of five adolescents actually experiences growing pains during this period.

Did you know?

People often find it difficult to accept the idea that bacteria can be beneficial and improve health. Lactic acid bacteria are good, and when eaten, these bacteria improve health and increase longevity. These bacteria included in foods such as yogurt.

For a complete list of videos, visit our video library