pollution permits

Question 1

what is a pollution permit

Answer 1

a permit sold to potential polluters in an attempt to limit pollution

once the government gives pollution permits to the firm, the firms can buy and sell them between themselves

Question 2

advantages of permit

Answer 2

• incentive to reduce pollution (can sell permits for profit)
• reduces level of pollution to SOQ
• increases welfare, increases allocative efficiency
• efficient and equitable for firms

Question 3

negatives of permits

Answer 3

• is deciding level of pollution allowed?
• high admin costs and difficult to enforce
• fines may not be strict enough
• need for international cooperation
• depends on level of information and number is firms that are able to reduce their emissions