of sulphur dioxide. Use the accompanying figure to help answer
the following questions.a. Explain what determines firms’ demand for permits.
b. If there is a competitive market for pollution permits,
explain why the equilibrium price of the permit will equal
firms’ marginal abatement cost.
c. Explain why the equilibrium price of permits will fall if
polluting firms experience a technological improvement
that reduces their marginal abatement costs.
d. One advantage of tradable pollution permits is that they
allow the public to express their preferences for pollution
reduction through the market. What would happen, for
example, if Greenpeace decided to buy a large number of
pollution permits and “retire” them?
8. The federal government has imposed many regulations aimed at
reducing the pollution that is generated by driving. The more