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How can pollution-causing production affect GDP and welfare?

Answer and explanation

Correct answer: GDP may rise while welfare falls

Production that causes pollution may have a market price and therefore add to measured GDP. However, the resulting air, water, or noise pollution can impose health costs, damage ecosystems, and reduce quality of life. These costs are negative externalities and may not be deducted from GDP. Thus GDP can rise while welfare falls, making option A correct. The other options incorrectly assume that production and welfare must move together.

Related tags

PollutionNegative ExternalityGdpWelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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