(Solved): 26. A cap and trade model A. creates a market for negative externalities. B. is often preferred to ...

26. A cap and trade model A. creates a market for negative externalities. B. is often preferred to a simple Pigouvian tax. C. is a price and quantity based intervention. D. A and $\mathrm{C}$. E. $A,B$ and $C$. 27. Consider a cap and trade model, where two firms employ the same technorogy. The good is homogenous and the industry is perfectly competitive. Which of the following statements is true? A. A 50:50 initial permit split will incentivize firms to trade permits. B. A 70:30 initial permit split will incentivize firms to trade permits. C. The initial permit split does not matter, firms will always trade permits. D. When technologies are the same, a cap and trade model does not work. E. None of the above.