Which of the following is a benefit of importing goods and services in the context of externalities and social costs?

• A. It allows consumers access to a greater variety of products, potentially increasing overall social welfare.
• B. It always eliminates negative externalities associated with production.
• C. It guarantees lower prices for all domestic goods.
• D. It ensures that domestic producers will always benefit from increased competition.

Answer: (A)

Verified step by step guidance

1. Understand the concept of externalities and social costs: Externalities occur when the production or consumption of a good affects third parties not directly involved in the transaction, leading to social costs or benefits that are not reflected in market prices.
2. Recognize that importing goods and services can influence social welfare by providing consumers with access to a wider variety of products, which can increase consumer satisfaction and overall welfare.
3. Analyze why importing does not always eliminate negative externalities: Negative externalities are often related to production processes, and importing goods does not necessarily change the external costs associated with production either domestically or abroad.
4. Consider the impact of imports on prices and domestic producers: While imports can lead to lower prices due to increased competition, they do not guarantee lower prices for all domestic goods, nor do they ensure that domestic producers will always benefit, as competition can sometimes harm them.
5. Conclude that the primary benefit of importing in the context of externalities and social costs is the increased variety of products available to consumers, which can enhance social welfare by better satisfying diverse preferences.