Suppose Jonesʹ Company and Smithʹs Company Both Pollute

question 135

Multiple Choice

Suppose Jonesʹ company and Smithʹs company both pollute. Under a system of marketable pollution permits, which of the following must be true in order for Smith and Jones to benefit from trading the right to pollute?

• A)Smith and Jones must be able to reduce pollution at exactly the same cost.
• B)Smith and Jones must have different abatement costs.
• C)Smith and Jones must have a social conscience and must be devoted to pollution abatement.
• D)The government must direct Smith and Jones toward beneficial trades.

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Definitions:

Net Investment

The total amount spent on capital assets, like buildings and machinery, minus depreciation. It reflects the increase in the value of physical assets.

Depreciation

The gradual decrease in the economic value of the capital assets of a firm or nation due to wear and tear, obsolescence, or age, often accounted for in financial statements through depreciation expense.

Disposable Income

Income available to an individual or family after taxes, which can be spent or saved.

Disposable Income

The capital households have left for spending and saving after paying income taxes.