Multiple Choice
Which of the following is considered a negative externality beyond the control of a business?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following best explains why moving products internationally is much more complex than domestic transport in the context of externalities, social benefits, and social costs?
A
International transport involves additional regulations, tariffs, and potential environmental externalities that increase both social costs and complexity.
B
Domestic transport faces more externalities because local communities are more affected than those in international trade.
C
Domestic transport always has higher social costs due to longer distances within a country.
D
International transport is simpler because it benefits from standardized global procedures that reduce social costs.
Verified step by step guidance1
Step 1: Understand the concept of externalities, social benefits, and social costs in the context of transportation. Externalities are costs or benefits that affect third parties not directly involved in the transaction, while social costs include both private costs and external costs borne by society.
Step 2: Recognize that domestic transport typically involves fewer regulatory hurdles compared to international transport, which must comply with multiple countries' regulations, tariffs, and customs procedures.
Step 3: Identify that international transport can generate additional environmental externalities, such as pollution from shipping routes crossing multiple ecosystems, which increase social costs beyond those usually encountered in domestic transport.
Step 4: Analyze how these additional regulations, tariffs, and environmental externalities contribute to increased complexity and higher social costs in international transport compared to domestic transport.
Step 5: Conclude that the best explanation is that international transport involves these extra layers of complexity and externalities, which raise social costs and make it more complex than domestic transport.
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