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Economics 2 |
Suppose we run a power plant that currently emits 8000 tons of SO2 a year and that the EPA wants to reduce sulfur emissions by 25%. Our firm might receive 6000 permits. We then have 3 options:
What do we do? It depends on the costs of reducing sulfur emissions and the price of a permit. We will do whatever is the least expensive. Those firms that can cheaply reduce emissions will end up selling permits to those firms that find it expensive to reduce sulfur emissions. In this way, the 25% reduction in SO2 emissions is achieved in the least costly way.
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David A. Latzko Business and Economics Division Pennsylvania State University, York Campus office: 13 Main Classroom Building phone: (717) 771-4115 fax: (717) 771-4062 e-mail: web: www.yk.psu.edu/~dxl31 |
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