Why Would the Government Allow Companies to Buy and Sell

Multiple Choice

Why would the government allow companies to buy and sell permits that allow companies to emit specified amounts of pollutants?

A) It reduces the externality even more than setting limits without the possibility of trading emissions permits.
B) It eliminates bias in the allocation of emissions rights.
C) It ensures that emissions reductions are primarily undertaken by firms that can reduce emissions at a lower cost than others can.
D) It eliminates the costs of any externalities.