Tradable Allowances

question 192

Multiple Choice

Tradable allowances:

• A) are typically hard to pass through the Environmental Protection Agency (EPA) since they allow firms to legally pollute.
• B) are an efficient way to reduce pollution at lower costs.
• C) decrease the profitability of firms since now they have to pay for the rights to pollute.
• D) are equal to the social surplus in the market.

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Definitions:

Consumer Surplus

The difference between the aggregate willingness to pay by consumers for a good or service and the aggregate actual payment.

Deadweight Loss

An economic inefficiency caused by a disruption in market equilibrium, leading to a loss of societal welfare.

Consumer Surplus

The disparity between the ideal total expenditure consumers are willing to make on a good or service and the real expenditure.

Producer Surplus

The distinction in financial terms between what producers expect to receive for a product or service and the actual revenue attained.