Chapter 74, Problem 7MCQ

To determine

The drawback of tradable emissions permits

Answer to Problem 7MCQ

From the available options, the correct option is governments may provide too many or too few permits.

Explanation of Solution

The major disadvantage of tradable emissions permits is it provides sometimes, too many or too few permits for the organization because it will not support the government or society to reduce pollution levels. Moreover, it also makes the firms uncompetitive and may increase the cost of production. The government's permits encourage the use of emissions-reducing technology to increase the quality of the environment through tradable emissions permits. And the high cost of reducing emissions will end up with a decrease in emissions which can be an advantage for the environment. As firms can buy permits if emission increases and sell if it decreases, which means there is no need for incentive.

Therefore, the correct option is e (governments may provide too many or too few permits)

Economics Concept Introduction

Introduction: Tradable emissions permits provide the right or allow the firms to produce a certain amount of pollution and it creates the chance to exchange efficiently.