When Comparing a System of Emission Taxes to a System

question 76

Multiple Choice

When comparing a system of emission taxes to a system of tradable pollution permits,the same amount of pollution could be abated in each as long as

• A)the marginal cost of abatement was equal across all firms.
• B)the marginal benefit of abatement curve was horizontal.
• C)the emission tax rate,t,was applied equally to all firms.
• D)the cap on emissions was chosen such that the equilibrium price of the permits,p^∗,could rise over time.
• E)the cap on emissions was chosen such that the equilibrium price of the permits,p^∗,was equal to the emissions tax rate,t.

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Definitions:

Income Increase

Income increase refers to the rise in an individual's or household's earnings, affecting their purchasing power and consumption habits.

Fair Insurance Policy

An insurance policy for which the premium is equal to the expected value of the claim.

Risk-Averse

The characteristic of preferring to avoid risk, opting for lower but more certain returns over potential higher but uncertain returns.

Probability

A measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.