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In which example will GDP measure market production but not fully show social cost?

Answer and explanation

Correct answer: Output of a polluting factory

The output of a polluting factory has a market price and is therefore included in GDP as current production. However, GDP records the value of the goods produced and does not fully subtract external costs such as air pollution, health damage, ecological loss, or reduced quality of life. Thus, GDP may rise even when social welfare does not rise by the same amount.

Related tags

GdpEnvironmental CostPollutionWelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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