outweighed the costs. As the extent of environment regulation increases, additional expenditures on

environmental protection will probably have increasing marginal costs and decreasing marginal benefits. This

pattern suggests that the flexibility and cost savings of market-oriented environmental policies will become

more important.

12.5 International Environmental Issues

Certain global environmental issues, such as global warming and biodiversity, spill over national borders and

require addressing with some form of international agreement.

12.6 The Tradeoff between Economic Output and Environmental Protection

Depending on their different income levels and political preferences, countries are likely to make different

choices about allocative efficiency—that is, the choice between economic output and environmental protection

along the production possibility frontier. However, all countries should prefer to make a choice that shows
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