Multiple Choice
Which type of cost does the increased car insurance premium for individuals convicted of drunk driving best represent in the context of externalities?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
A country can have an increased surplus in its balance of trade as a result of:
A
an increase in domestic consumption of imported goods
B
exporting more goods and services than it imports
C
importing more goods and services than it exports
D
a decrease in domestic production of goods and services
Verified step by step guidance1
Understand the concept of the balance of trade, which is the difference between the value of a country's exports and imports of goods and services. It is calculated as: \(\text{Balance of Trade} = \text{Exports} - \text{Imports}\).
Recognize that a trade surplus occurs when exports exceed imports, meaning the country sells more goods and services abroad than it buys from other countries.
Analyze each option in terms of its effect on the balance of trade: an increase in domestic consumption of imported goods would increase imports, potentially reducing the surplus; importing more than exporting would create a trade deficit, not a surplus; a decrease in domestic production does not directly increase exports or reduce imports.
Focus on the option where the country exports more goods and services than it imports, as this directly increases the balance of trade surplus by increasing the numerator (exports) relative to the denominator (imports).
Conclude that to increase the surplus in the balance of trade, the country must export more than it imports, which aligns with the correct answer.
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