Question

Suppose a political candidate criticizes a government pollution permit policy that she says lets corporations buy and sell the right to pollute. She argues that our fight to breathe and the future of our planet requires real regulation instead of this type of government policy.

Which of the following describes why most economists would disagree with ber statement?

• A free market in tradable pollution permits is typically more efficient than government regulation.

• A corrective tax would result in a more efficient outcome than either tradable permits or government regulation would.

• Clean air is a fundamental right, and government regulation will allow too much pollution.

• The environment is so important that it should be protected as much as possible, regardless of the cost.

Answer 1

A free market in tradable pollution permits is typically more efficient than government regulation.

The candidate's argument contradicts with economic thinking since, tradable pollution permit is a market-based policy which efficiently allocates the right to pollute. In case of government regulation of pollution can result in the same amount of pollution as a tradable pollution permit policy, it rarely results in an efficient allocation of the right to pollute among the regulated entities.

On the other hand a free market can achieve this goal at ease by rewarding the firms that can curtail down their pollution level efficiently and by reducing the pollution in a cost effective manner.

We all will agree that pollution free air is our right but it's opportunity cost is very high to the society thus it is not optimal.

First option is correct.

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