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One of the strategies to limit greenhouse emissions is to apply a cap and trade system. Assumethe government has created a perfectly inelastic supply of
One of the strategies to limit greenhouse emissions is to apply a cap and trade system. Assumethe government has created a perfectly inelastic supply of 14 million pollution permits (each of which allows for one ton of carbon emissions). The market price for one permit is $600. Assume some new firms enter the market and demand pollution permits. What happens to the price of a permit and to the legal quantity of pollution? Explain.
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