When Domestic Production Causes Domestic Pollution
(Figure 13.4)

With the tax, domestic consumers still buy 1.8 billion reams of paper, but now domestic producers supply only 1.4 billion reams. As shown, it is actually best for the country to import paper, not export it. The usual gains from importing are represented by area e. Press "Show area e" to show the area on the graph. From this example, we see that pollution that imposes costs only on the local economy can still have a major impact on how we think about international trade. With no government policy limiting pollution, the country can end up worse off with free trade, and the trade pattern can be wrong.
Press "Continue" when you are ready to move on. The "Reset" button will clear the graph.