A dam project raises electricity production but displaces many families. What should be done while assessing welfare?

Correct answer: Both output benefits and social costs should be evaluated

The governing concept is social cost-benefit assessment rather than relying on output alone. The dam may increase electricity production and recorded economic activity, but displacement imposes costs such as loss of homes, livelihoods, community ties, and adjustment burdens. A sound welfare assessment compares the project’s benefits with these social costs and any compensation. Therefore, option D is correct; options A, B, and C each consider only one side or ignore affected people.