Reading: Pollution Permits and Opportunity Costs

industrial machine near crops
Photo by Johannes Plenio on

A reading by Holt et al. in the International Review of Economics Education, provided by The Economics Network, UK, that can be used for a classroom/laboratory activity to teach your students to identify and account for opportunity costs in production decisions.

Students will learn about opportunity costs and tradable emission permits as a part of the cap and trade scheme. They will also learn of challenges in decision-making through a role-playing activity in which the students get to set production quantities within the limits of their emissions permits. 

Use this tool to help your students find answers to: 

  1. Define the following:
    1. Opportunity Cost
    2. Production Cost
    3. Cap and Trade
    4. Pollution/Emissions Permit
  2. What are the advantages and disadvantages of using tradable emissions permits in the context of climate change?

About the tool

Tool NameTeaching Opportunity Cost in an Emissions Permit Experiment
Topic(s) in DisciplineOpportunity Costs, Consumer Choices, Fixed Market price, Tradable Pollution/ Emission Permits, Emission Permit Allocation, Cap and Trade Schemes, Carbon Emissions
Climate Topic Energy, Economics and Climate Change
Type of tool Reading (pp 34 – 42)
Grade LevelUndergraduate
Developed byCharles Holt, Erica Myers, Markus Wråke, Svante Mandell and Dallas Burtraw
Hosted atInternational Review of Economics Education, provided by The Economics Network, UK
Computer SkillsBasic