In the context of externalities and social costs, the United States has demanded that China reduce overcapacity in which industry?

• A. Textiles
• B. Electronics
• C. Automobiles
• D. Steel

Answer: (D)

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 who are not directly involved in the transaction. Social costs include both private costs borne by producers and any external costs imposed on society.
2. Recognize that overcapacity in an industry means producing more than the market demand, which can lead to negative externalities such as lower prices, unfair competition, and environmental harm.
3. Identify the industry in question by recalling recent international trade disputes and environmental concerns where the United States has pressured China to reduce overcapacity.
4. Recall that the steel industry has been a major focus of such disputes due to its significant overproduction in China, leading to global market distortions and social costs.
5. Conclude that the industry where the United States has demanded China reduce overcapacity, in the context of externalities and social costs, is the steel industry.