Exhibit 30-3 Refer to Exhibit 30-3

Multiple Choice

Exhibit 30-3 Refer to Exhibit 30-3. Suppose that Firms A, B, and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere. To cut the level of pollution in half the government issues two transferable pollution permits to each firm (a cap and trade policy) .  What is the total cost savings to society of decreasing pollution to half its present level if firm C buys one pollution permit from firm A and one pollution permit from firm B compared to if there were a government mandate for each firm to cut pollution by one-half?

A) $515
B) $1,300
C) $1,380
D) $965
E) $1,025