In a cap-and-trade program for pollution rights, what determines the equilibrium market price for a pollution right?
Explanation
A cap-and-trade program for externalities creates a market to achieve environmental goals efficiently. The government sets the total quantity of pollution allowed (the cap), creating a fixed supply. The market price for the right to pollute is then determined by the demand from firms, which is based on their individual costs of reducing pollution.
Other questions
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