The Nobel Prize-winning economist Oliver Hart once said, "If we know the marginal social cost [of pollution] emissions, a tax is better, but if we know the optimal quantity, cap and trade is better. " Given this statement and the knowledge of ways governments can intervene in markets, evaluate the following statement:
Any outcome that can be achieved by taxing can also be accomplished by establishing a quota.
This is because
a. If we know the marginal social cost, we can set the optimal quantity equal to the optimal price. If we know the optimal quantity, we can set a quota equal to the optimal price.
b. If we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result, the optimal quantity will be achieved. If we know the optimal quantity, we can set a quota and the market will find the optimal price.
c. Knowing the marginal social cost allows companies to know how much to increase their prices and make more profits. This is better for the economy as a whole because then companies can create more jobs. Cap and trade restricts quantity, which lowers profits.
d. If we know the optimal quantity, cap and trade can be used to set the price. If we know the marginal social cost, a tax can be used to set the quantity
