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Question
To reduce the level of pollution emitted by firms in an industry, the government could use a cap-and-trade policy or a carbon tax (where the government taxes carbon producers based on the amount of carbon produced). Which of the following is true?
a. The price of the good sold will rise with the carbon tax policy, but not with the cap-and-trade policy.
b. The quantity of the good sold will fall with the carbon tax policy, but not with the cap-and-trade policy.
c. The price of the good sold will rise under either policy, but there will be no change in the level of production.
d. The quantity of the good sold will fall under either policy, but there will be no change in the price of the good.
e. The price of the good sold will rise under either policy, and there will be a reduction in the level of production.
Answer
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