In a Competitive Market for Tradable Pollution Permits,the Quantity of Permits

question 55

Multiple Choice

In a competitive market for tradable pollution permits,the quantity of permits (for a given amount of pollution) is set by ________ and the equilibrium price is determined by ________.

• A)market forces; government policy
• B)government policy; the average cost of pollution abatement
• C)government policy; market forces
• D)market forces; market forces
• E)government policy; government policy

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Definitions:

Maximizing Utility

The process by which individuals or consumers adjust their consumption of goods and services to achieve the highest level of satisfaction or utility.

Consumer Surplus

The difference between the maximum amount a person is willing to pay for a good and its current market price.

Law of Diminishing Marginal Utility

An economic principle stating that as consumption of a good or service increases, the marginal utility derived from each additional unit decreases.

Marginal Utility

Marginal Utility is the added satisfaction or benefit a consumer receives from consuming one more unit of a good or service.