Suppose that the level of sewage is flowing into Lake Michigan is specified by the federal government. Assume that the cities and towns on Lake Michigan are the only polluters. If these same cities and towns trade the rights to pollute among themselves, then this is a system of _____________________.

Question

Pigouvian subsidies.

Pigouvian taxes.

Tradable pollution permits.

Emission taxes.

Answer 1

If the cities and towns on Lake Michigan are trading the rights to pollute among themselves, then this is a system of tradable pollution permits.