If timber production rises through deforestation but soil erosion also increases what should be done in welfare analysis?

Correct answer: Both output gains and environmental costs should be evaluated

GDP may record the market value of timber as current production, but it does not automatically subtract every loss of ecosystem services or future productive capacity. Deforestation can impose costs through soil erosion, biodiversity loss, water damage, and reduced benefits for future generations. Welfare analysis should therefore compare the timber gain with these environmental and social costs, seeking the net effect. Option D is correct; A, B, and C ignore or dismiss important external costs.