A government gives firms free non-tradeable pollution permits. These set the highest level of polluting gases that the firms are permitted to release. After a change in legislation, the permits may be traded between firms. If all other costs and revenues stay unchanged, what effect will this have on the profits of the firms that become buyers or sellers of 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