ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Licenses to emit quantities of pollutants that can be bought and sold by polluters.
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The property of a good whereby a person can be prevented from using it.
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The property of a good whereby one person’s use diminishes other people’s use.
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A person who receives the benefit of a good but avoids paying for it.
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Detailed explanation-1: -Tradable pollution permits are so-called cap and trade schemes. They give companies a legal right to pollute a certain amount per fixed time span. Firms that pollute less can then sell their leftover pollution permits to firms that pollute more.
Detailed explanation-2: -Tradable permits give the holder the right to pollute a certain amount, to buy permits if emissions increase, and to sell permits if emissions decrease. One version of tradable permits is to lease the permit at a market auction.
Detailed explanation-3: -The major advantage of a tradable permits system is that it creates the opportunity for efficient exchange-one potential polluter can buy permits from another, leaving the total amount of pollution constant.
Detailed explanation-4: -Pollution permits involve giving firms a legal right to pollute a certain amount e.g. 100 units of Carbon Dioxide per year. If the firm produces less pollution it can sell its pollution permits to other firms. However, if it produces more pollution it has to buy permits from other firms or the government.