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

question 49

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.
In Figure 13.4, if the government sells Q_b permits to pollute at a price of P_b each, then:

• A)the allocation of pollution reduction is inefficient.
• B)firms in the market will be forced to shut down due to excessive government regulation.
• C)the allocation of pollution reduction is efficient, because only those firms with a marginal cost of pollution reduction greater than P_b will buy the permits.
• D)the allocation of pollution reduction is efficient, because only those firms with a marginal cost of pollution reduction less than P_b will buy the permits.
• E)the allocation of pollution reduction is inefficient, because only those firms with the lowest costs of pollution reduction will purchase the permits.

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