As a result of the new VIA hotel/resort,
tourists who stay in Myrtle Beach are likely to experience a
a. product-variety
externality, which harms consumers.
b. product-variety
externality, which benefits consumers.
c. business-stealing
externality, which harms consumers.
d. business-stealing
externality, which benefits consumers.
The correct answer and explanation is :
The correct answer is:
b. product-variety externality, which benefits consumers.
Explanation:
To understand the reasoning behind this answer, let’s break down the key concepts of externalities, specifically in the context of tourism and hotels, like the VIA hotel/resort in Myrtle Beach.
1. Product-Variety Externality:
A product-variety externality occurs when the introduction of a new product (in this case, the new VIA hotel/resort) increases the range of choices available to consumers. It benefits consumers because it makes their experience more diverse and personalized. By providing more options, tourists have a better chance of finding a hotel or resort that fits their preferences and needs.
When a new hotel opens in a tourist destination like Myrtle Beach, it adds to the variety of available accommodations. Tourists may enjoy different pricing, amenities, styles, or locations. This increased variety gives them the chance to select something that better suits their desires, which is a benefit. Even if some tourists do not choose to stay at the new hotel, the broader variety enhances their experience by forcing existing hotels to improve their offerings to remain competitive.
2. Why Not Business-Stealing Externality?
A business-stealing externality occurs when a new business reduces the profits or market share of existing competitors. This type of externality tends to harm other businesses, not necessarily consumers. While some businesses (like other hotels or resorts in the area) may see a reduction in customers, this is not an immediate negative for tourists. In fact, the competition may push other hotels to improve their services or lower prices, which indirectly benefits consumers. Hence, it’s not typically classified as harming consumers, which rules out the “business-stealing” option.
Thus, product-variety externality is the correct term, and it benefits consumers by enhancing their choices and improving the overall market environment.