Economists Often Argue That a System of Tradable Pollution Permits

question 17

Multiple Choice

Economists often argue that a system of tradable pollution permits is cost-effective because

• A)firms facing a high marginal cost of abatement will not abate at all.
• B)firms facing a low marginal cost of abatement will not abate at all.
• C)firms facing a marginal cost of abatement lower than the permit price will not abate at all.
• D)firms with a marginal cost of abatement lower than the permit price will buy permits and abate less.
• E)firms will choose their abatement so that their marginal cost of abatement equals the price of a permit,which is the same for all firms.

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Definitions:

Present Value

The calculation that determines the worth of a future amount of money or series of cash flows at the present time, factoring in a specific interest rate.

Discount Rate

The interest rate applied for calculating the present worth of anticipated cash flows in future during the discounted cash flow analysis process.

Compounded Monthly

Interest calculation method where the interest earned each month is added to the principal, thus increasing the amount of subsequent interest accrued.

Factorial ANOVA

A statistical test used to determine the effect of two or more independent variables on a dependent variable, allowing for interactions between variables.