In Some Cases, Tradable Pollution Permits May Be Better Than

question 109

Multiple Choice

In some cases, tradable pollution permits may be better than a corrective tax because

• A)pollution permits allow for a market solution while a corrective tax does not.
• B)corrective taxes distort incentives.
• C)pollution permits generate more revenue for the government than a corrective tax.
• D)it is hard to estimate the market demand curve and thus charge the right corrective tax.

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Definitions:

Black Monday

Refers to a specific date, October 19, 1987, when stock markets around the world crashed, recording the largest one-day percentage decline in stock market history.

Daily Returns

The profit or loss of an investment over a single trading day, expressed as a percentage of the investment's value at the start of the trading day.

Normally Distributed

A statistical term that describes a bell-shaped frequency distribution that is symmetric about the mean, used in various financial models to assume the distribution of returns or asset prices.

Risk-Adjusted Returns

Performance measurement that evaluates the return gained from an investment relative to the risk taken, often calculated using measures such as the Sharpe ratio.