In the Multiple-Polluter Case for a Pollution Permit System, Suppose

question 20

Multiple Choice

In the multiple-polluter case for a pollution permit system, suppose two firms, X and Y, face marginal abatement costs of MAC_X = 1.2A_X and MAC_Y = 0.4A_Y, respectively. To meet water quality standards, the government issues each firm pollution permits such that each firm must abate 20 units of pollution. If permit trading were allowed,

• A) firm X would have an incentive to buy a permit as long as the price were less than $24
• B) firm Y would be willing to sell a permit as long as the price were less than $8
• C) at a permit price of $22, firm X would have an incentive to buy, but firm Y would have no incentive to sell
• D) no trading would take place because neither firm has an incentive to trade based on this model

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Definitions:

Consumer Income

Refers to the total earnings or financial inflow that consumers receive from all sources, affecting their purchasing power and demand for goods and services.

Equilibrium Price

The price at which the quantity of goods supplied matches the quantity of goods demanded in a market, leading to a stable market condition.

Quantity Demanded

The total amount of a good or service that consumers are willing to purchase at a given price level in a specified period.

Quantity Supplied

The level of a commodity or service that manufacturers are eager and capable of providing for purchase at a determined price over an established period.