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Suggested answers to end of chapter questions and problems
1. There are two effects. First, rising production and consumption bring rising pollution if
the techniques used to produce and consume are unchanged. Second, rising income
brings increased demand for pollution control because a cleaner environment is a normal
2. Disagree. The distortion caused by pollution is the result of the difference between the
private costs and the social costs of the activity that creates the pollution. Because the
3. Both (b) and (d). For item (b), the WTO places strict requirements on a country using trade
limits to punish a foreign country for having environmental standards for production in the
4. The first thing to consider is whether the mine-related pollution in the lax countries has
any adverse environmental effect on the strict country. If it does not, then the strict
country has no national concern about lax policies in other countries. The strict country
5. While there is some room for interpretation here, the specificity rule definitely prefers
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
As for (d ), intercepting and taxing all tankers in national waters is a reasonable choice.
Its workability depends, however, on the cost of such coast-guard vigilance. If all tankers
entering national water must put into port, they could be taxed in port. That is unlikely,
6. a. The shaded loss area b is now $15 million. Free trade makes the country better off,
b. If there is no way to reduce pollution per ream of paper produced, then the first-best
outcome can be achieved if the government imposes a tax of $0.05 per ream produced
7. Item (c). This tax would lead to substantial reductions in the use of fossil fuels, the major
8. a. The governments should determine the external costs imposed by the pollution on both
countries combined, and impose this as a tax per unit of pollution emitted by the cement
b. If the Pugelovian government must fashion a solution on its own, it should consider
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Euros per ton
825
748.5
720
162 180 Millions of tons
of waste dumped
K
J
MBG
H A
MCA
9. No trade barriers are called for by the information given here. If the wood is, in fact,
grown on plantation land that would have been used for lower-value crops, there is no
clear externality, no basis for government intervention. Only if the plantations would
10. a. The graph shows the marginal benefit to German (MBG) from dumping waste into the
Danube and the marginal cost to Austria (MCA) of that waste dumping by Germany.
When Austria imposes the tariff on imports of paper, the German dumping of waste
declines by 10 percent, to 162 million tons. The reduced dumping brings benefits to
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
b. Austria is better off than it was before imposing the tariff. It gains about €14.2 billion in
11. For the rhino, as an endangered species, CITES bans commercial international trade in
horns (and other parts). One challenge for CITES is making this ban work. If the ban is
combined with education of potential buyers to decrease demand, then the price of horns
decreases and the incentive to poach (in which a rhino is killed to obtain its horn)
12. The success of the Montreal Convention in limiting CFCs was largely due to these facts:
(a) the scientific evidence that CFCs were depleting the ozone was clear; (b) relatively
few countries and companies accounted for most of the world’s production of CFCs,
limiting the number of negotiating parties; (c) these countries are located at high
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
