Answer to Question #119348 in Microeconomics for ibrahim

Question

According to the World Wildlife Fund (WWF), it takes 2700 litres of water to produce one T-shirt. Water is used not only to grow cotton but also to dye clothing. Cotton growers use pesticides and chemicals that pollute the water. The pesticides and chemicals that remain in the environment harm animals and plant life. The WWF has been working with governments to help reduce this pollution. It advises them to introduce more regulation and to fine companies that pollute. Clothing manufacturers argue that this will add to their costs and mean they will supply less.This may mean they employ fewer people and will help reduce water pollution as less clothing is being manufactured. Fines will punish those that pollute while also earning the government revenue it can use to clean up the pollution. The fines must also be large enough to persuade firms to stop polluting." evaluate the impact of the government introducing regulation and fines to reduce the external costs of clothing production in its country

Answer 1

Evaluation of the impact of the government introducing regulation and fines to reduce external costs of clothing production inits country:

• The cost of meeting regulations can discourage the producers and also lower the competition in the markets
• if pollution taxes are raised in one country, producers may shift to another country with lower taxes .This will lead to unemployment and investment consequences of that country
• due to regulations and fines introduction, the clothing industry will not be in a position of achieving its goal of maximizing profits as they produce less clothing
• There will be a decline in the standards of living since fewer people will be employed
• Low savings,investment and economic growth will also arise