In a situation where there is no incentive to cut pollution because it will make domestic firms less competitive, world welfare will improve if:
A) nations impose tariffs on polluters.
B) there is an international agreement so that every nation regulates global pollutants and no firms have competitive advantages because of lax pollution laws.
C) there is a ban on production until we can scientifically solve our pollution problems.
D) we allow the market to work in this case.

Question

Quizplus · Accepted Answer

A comprehensive international agreement would ensure that all nations regulate pollution and prevent any unfair competitive advantages for firms with lax pollution laws. This would lead to a global reduction in pollution and improve world welfare. Imposing tariffs or banning production may not be practical solutions, and allowing the market to work in this situation may not lead to a reduction in pollution if there is no incentive for firms to do so.

In a Situation Where There Is No Incentive to Cut