In a cap-and-trade program that covers only two firms, suppose Firm A has linear marginal abatement costs that are twice as high as Firm B’s linear marginal abatement costs. Permits are handed out so that both firms need to reduce their emissions to meet their cap. With the initial allocation of permits, Firm A and Firm B are each required to do half of the total required abatement. Given this starting point: a.) Neither firm will be seeking to buy permits, because the initial allocation happens to be the least-cost allocation of abatement responsibility. b.) Firm A will be seeking to buy permits and Firm B will be willing to sell some. c.) Firm B will be seeking to buy permits and Firm A will be willing to sell some. d.)Both firms will be seeking to sell permits.
In a cap-and-trade program that covers only two firms, suppose Firm A has linear marginal abatement costs that are twice as high as Firm B’s linear marginal abatement costs. Permits are handed out so that both firms need to reduce their emissions to meet their cap. With the initial allocation of permits, Firm A and Firm B are each required to do half of the total required abatement. Given this starting point: a.) Neither firm will be seeking to buy permits, because the initial allocation happens to be the least-cost allocation of abatement responsibility. b.) Firm A will be seeking to buy permits and Firm B will be willing to sell some. c.) Firm B will be seeking to buy permits and Firm A will be willing to sell some. d.)Both firms will be seeking to sell permits.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In a cap-and-trade program that covers only two firms, suppose Firm A has linear marginal abatement costs that are twice as high as Firm B’s linear marginal abatement costs. Permits are handed out so that both firms need to reduce their emissions to meet their cap. With the initial allocation of permits, Firm A and Firm B are each required to do half of the total required abatement. Given this starting point:
a.) Neither firm will be seeking to buy permits, because the initial allocation happens to be the least-cost allocation of abatement responsibility.
b.) Firm A will be seeking to buy permits and Firm B will be willing to sell some.
c.) Firm B will be seeking to buy permits and Firm A will be willing to sell some.
d.)Both firms will be seeking to sell permits.
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