Economics (AS & A Level) · May / June 2022 · Paper 31 · Question 14
9708Government policies to achieve efficient resource allocation and correct market failure
A government issues free non-tradeable pollution permits to firms. They specify the maximum amount of polluting gases these firms are allowed to emit. In a change in legislation, the permits can be traded with other firms. Assuming that all other costs and revenues remain the same, what will be the impact on the profits of the firms that are now buyers or sellers of the permits?
- Adecrease / decrease
- Bdecrease / increase
- Cincrease / decrease
- Dincrease / increase
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Correct answer: B. decrease / increase
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