Multiple Choice
If we do not switch to renewable energy, which of the following is most likely to occur due to externalities?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Why is it generally easier to identify the social costs than the social benefits of international trade?
A
International trade does not generate any social benefits, only costs.
B
Social benefits are always smaller than social costs, making them less significant.
C
Governments only collect data on costs, not benefits, of international trade.
D
Social costs, such as job losses or environmental damage, are often concentrated and directly observable, while social benefits are dispersed and harder to measure.
Verified step by step guidance1
Understand the difference between social costs and social benefits in the context of international trade. Social costs refer to negative effects like job losses or environmental damage, while social benefits include gains such as increased variety of goods, lower prices, and economic growth.
Recognize that social costs tend to be concentrated among specific groups or regions, making them more visible and easier to identify. For example, workers in a particular industry losing jobs are a clear and direct cost.
Acknowledge that social benefits are often dispersed across many consumers and producers, making them less obvious. Benefits like lower prices or improved product quality are spread out and harder to measure individually.
Consider the measurement challenges: social costs often have tangible, immediate impacts that can be quantified (e.g., unemployment rates, pollution levels), whereas social benefits may be intangible or long-term, such as increased consumer satisfaction or innovation.
Conclude that because social costs are concentrated and directly observable, while social benefits are dispersed and less tangible, it is generally easier to identify and measure social costs than social benefits in international trade.
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