Suppose That There Are Two Firms, Each Generating Three Tons

question 295

Multiple Choice

Suppose that there are two firms, each generating three tons of SO₂. Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits, each firm would receive

• A) two non-transferable pollution permits.
• B) two pollution permits which they could sell to each other.
• C) one pollution permit with a value equal to that firm's cost of abating one ton of SO₂.
• D) one pollution permit with a value equal to the market price for a pollution permit.

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Definitions:

Availability Heuristic

A cognitive bias that causes people to overestimate the likelihood of events based on their ability to recall examples.

Nuclear Power

The use of nuclear reactions to generate heat, which is then used in power plants to produce electricity without emitting greenhouse gases during the process.

Personal Judgment

The process of forming opinions or conclusions based on one's own perception, experience, or information.

Heuristics

Mental shortcuts or rules of thumb that the brain uses to simplify decision making, which can be efficient but may lead to cognitive biases.