Tradable Pollution Permits — Reducing the Cap

Government Intervention · Micro
LearnWithOtti LearnWithOtti
www.learnwithotti.co.uk
S₁ (original cap) S₂ (reduced cap) D (derived demand)
Cutting the cap shifts the fixed supply of permits left from S₁ to S₂. Demand is unchanged, so the permit price rises from P₁ to P₂.