A Level Economics AQA Practice Exam

What might be a potential benefit of pollution permits?

1. They eliminate all pollution immediately

2. They provide a market-based approach to reducing pollution

3. They require firms to operate without any emission limits

4. They give firms unlimited rights to pollute

The correct answer is: They provide a market-based approach to reducing pollution

A potential benefit of pollution permits is that they provide a market-based approach to reducing pollution. This system creates a cap on the total level of pollution allowed, thereby establishing a limit on emissions while allowing firms to buy and sell permits. This market mechanism incentivizes firms to reduce their emissions where it is most cost-effective to do so. Companies that can lower emissions at a lower cost can sell their excess permits to others who may face higher costs to reduce pollution. This not only encourages innovation and the development of cleaner technologies but also enhances overall efficiency in the allocation of resources for pollution reduction. Other options discuss outcomes that do not align with the intended function of pollution permits. Eliminating all pollution immediately is not feasible, and permits instead allow for a structured reduction. Requiring firms to operate without any emission limits contradicts the purpose of pollution permits. Lastly, giving firms unlimited rights to pollute deviates from the core goal of regulating emissions and ensuring environmental protection. Thus, the market-based mechanism of pollution permits effectively balances economic activity with ecological responsibility.