When the Number of Tradable Allowances Is Set Equal to the Efficient

question 175

Multiple Choice

When the number of tradable allowances is set equal to the efficient market quantity:

• A) it is equivalent to a tax set equal to the level of the external cost.
• B) the outcome will be more efficient than a tax on pollution.
• C) it is equivalent to a government regulation set equal to the efficient market quantity.
• D) the price of the allowances will equal the social cost of pollution.

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Definitions:

Junk Bonds

High-risk, high-yield bonds issued by companies considered to be at greater risk of default.

Government Bonds

Debt securities issued by a government to finance its borrowing requirements, offering a fixed or variable interest rate payable to holders.

Dividends

Payments made by a corporation to its shareholder members from its profits or reserves.

Debentures

A type of debt instrument that is not secured by physical assets or collateral but backed solely by the general creditworthiness and reputation of the issuer.