This video goes through the logic of a tradable permits system for pollution reduction (as compared to a command-and-control policy) and shows how tradable permits (also known as cap and trade) can lower the cost to society of pollution reduction. The problem is taken from Principles of Microeconomics by Dirk Mateer and Lee Coppock, and is Ch. 7 problem #8. See the “Practice Problems” playlist for an archive of daily practice problems.
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By Jodi Beggs – Economists Do It With Models