If domestic production of a product causes pollution that imposes an external cost on the country, then:
A)exports of the product should be subsidized.
B)exports of the product offset the external costs.
C)exports of the product can make the country worse off.
D)exports are less than they would be otherwise.

Question

Quizplus · Accepted Answer

If domestic production of a product causes pollution that imposes an external cost on the country, the country can be worse off by exporting the product. This is because the external cost of pollution is not accounted for in the price of the product, meaning that the domestic producer is not paying for the negative effects on the environment. If the product is exported, the external cost is still imposed on the country, but the producer receives the full benefit of the export revenue. Therefore, exporting the product can lead to a net loss for the country when the external costs are considered.

If Domestic Production of a Product Causes Pollution That Imposes