The Figure Given Below Shows the Demand for Permits and the Maximum

question 68

Multiple Choice

The figure given below shows the demand for permits and the maximum permissible level of pollution. Figure 13.4 In the figure,
The downward sloping line is the demand curve of permits;
The vertical line denotes the maximum permissible limit of pollution.
Refer to Figure 13.4.Suppose the government wishes to reduce pollution to a quantity of Q_b.If it sells marketable pollution permits at a quantity of Q_b then:

• A)firms will bid the price of the permits up to a price of P_a, and Q_a pollution will result.
• B)firms will bid the price of the permits up to a price of P_b, and Q_b pollution will result.
• C)firms will bid the price of the permits up to a price of P_c, and Q_c pollution will result.
• D)firms will bid the price of the permits up to a price of P_c, and Q_b pollution will result.
• E)firms will not be willing to pay a price for the permits, so no pollution will be reduced.

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Definitions:

Nominal Wages

The amount of money paid to employees before adjustments for inflation, representing the face value of wages at the time they are paid.

Price Level

A measure of the average prices of goods and services in an economy at a given point in time.

Real Wages

Income from work adjusted for the inflation rate, indicating the true buying power of the earnings.

Profit-Maximizing Wage

The wage level at which a firm maximizes its profits by balancing the cost of labor with productivity.