Suppose that there is a negative externality associated with alcohol consumption in the United States (e.g., the costs of publicly funded alcoholism treatment centers). What will happen to the social costs of this externality if the United States eliminates all tariffs on alcohol imports?
A) The social coasts will increase.
B) Total social costs will not change.
C) Total social costs will decrease.
D) The social costs will increase but be offset by the private losses associated with increased imports as the tariffs are eliminated.

Question

Quizplus · Accepted Answer

Eliminating tariffs on alcohol imports will likely lower the price of alcohol, potentially increasing consumption. This increase in consumption can exacerbate the negative externalities associated with alcohol consumption, such as the costs of publicly funded alcoholism treatment centers, thereby increasing the total social costs.

Suppose That There Is a Negative Externality Associated with Alcohol