An Advantage of Tradable Permits Over Command and Control Policies

question 53

Multiple Choice

An advantage of tradable permits over command and control policies is that

• A) policymakers do not need to know abatement costs to produce an optimal outcome.
• B) policymakers determine the best abatement method.
• C) the marginal cost of abatement decreases as the environment becomes cleaner.
• D) the law of diminishing returns will cause abatement costs to decline.

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Definitions:

Direct Labor Rate

Direct labor rate is the amount paid per hour or unit of work to employees who are directly involved in the production of goods or services.

Direct Materials Cost

The cost of raw materials and components that are directly used in the manufacture of a product.

Traditional Costing

A costing methodology that allocates overhead costs based on a single, volume-based cost driver, often used in less complex manufacturing environments.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities related to production.