A government gives firms free pollution permits that are non-tradeable. These permits state the highest quantity of polluting gases that the firms may release. A legal change then allows the permits to be traded between firms. If all other revenues and costs stay unchanged, what effect will this have on the profits of firms that now purchase or sell the permits?
- Aprofits of buyers of permits: decrease; profits of sellers of permits: decrease
- Bprofits of buyers of permits: decrease; profits of sellers of permits: increase
- Cprofits of buyers of permits: increase; profits of sellers of permits: decrease
- Dprofits of buyers of permits: increase; profits of sellers of permits: increase