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Homework answers / question archive / Which of the following is true of cap and trade? a
Which of the following is true of cap and trade?
a. It leads to less uncertainty about the marginal cost of abatement than taxes.
b. It leads to more uncertainty about the quantity of emissions reductions than taxes.
c. It leads to a cost-effective pattern of emissions reductions.
d. It does not provide incentives to innovate.
The correct options are:
b. It leads to more uncertainty about the quantity of emissions reductions than taxes.
c. It leads to a cost-effective pattern of emissions reductions.
d. It does not provide incentives to innovate.
Cap and trade help in reducing emission by creating a limit on the pollution and creating a market for the trade of emission limit. The trade component allows the firms to buy the emission limit and the price of these limits is set as per the demand and supply in the market. Firms can increase their emission limit by paying more. Also, the firms do not concentrate on the alternative ways of reducing pollution.
