A Level Economics AQA Practice Exam

What do pollution permits allow firms to do?

1. Maintain complete control over environmental standards

2. Engage in unlimited pollution without consequences

3. Transfer their pollution rights to other firms

4. Have the legal right to pollute a certain amount

The correct answer is: Have the legal right to pollute a certain amount

Pollution permits provide firms with a legal allowance to emit a specified quantity of pollutants. This system operates under the "cap and trade" model, where a regulatory authority determines a cap on the total level of pollution and distributes permits corresponding to that limit. By holding these permits, firms gain the right to emit a certain amount of pollutants legally, fostering accountability and encouraging them to find efficient ways to reduce emissions. Additionally, this mechanism creates a financial incentive for firms to lower their pollution output. If a firm can reduce its emissions below the level permitted, it may sell its excess permits to other firms that may be unable to meet their pollution limits. This trading aspect promotes overall reductions in pollution across the market, making the system both economically efficient and environmentally advantageous. The other options presented do not align with the fundamental purpose of pollution permits. For example, maintaining complete control over environmental standards is not accurate, as firmsmust adhere to government regulations. Engaging in unlimited pollution contradicts the very premise of permits, which impose specific limits. Finally, while transferring rights is a relevant feature of the permit system, it doesn't encompass the broader purpose of what permissions are granted through these permits, which is fundamentally about establishing a legal right to pollute up to a specified limit.