This paper, authored by Christian Broda and David E. Weinstein, explores the impact of increased product variety on national welfare in the United States over the period from 1972 to 2001. The authors use highly disaggregated import data to show that the number of imported product varieties has increased by a factor of four during this period. They estimate the elasticities of substitution for each category of goods and develop an exact price index, finding that the conventional import price index overestimates the actual price changes by approximately 1.2% per year. Based on these estimates, the authors conclude that the welfare gains from the growth in imported varieties are 2.8% of GDP, or about 3% of US real income. The study contributes to the literature on price measurement and provides a comprehensive examination of elasticities of substitution, demonstrating that goods traded on organized exchanges are more substitutable than those not traded on such exchanges. The findings support the importance of considering variety in international trade models and highlight the significant welfare benefits of increased trade.This paper, authored by Christian Broda and David E. Weinstein, explores the impact of increased product variety on national welfare in the United States over the period from 1972 to 2001. The authors use highly disaggregated import data to show that the number of imported product varieties has increased by a factor of four during this period. They estimate the elasticities of substitution for each category of goods and develop an exact price index, finding that the conventional import price index overestimates the actual price changes by approximately 1.2% per year. Based on these estimates, the authors conclude that the welfare gains from the growth in imported varieties are 2.8% of GDP, or about 3% of US real income. The study contributes to the literature on price measurement and provides a comprehensive examination of elasticities of substitution, demonstrating that goods traded on organized exchanges are more substitutable than those not traded on such exchanges. The findings support the importance of considering variety in international trade models and highlight the significant welfare benefits of increased trade.