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People in a village use clean air and water without payment. Why is their value generally not added to GDP?

Answer and explanation

Correct answer: They have no explicit market price

GDP records the market value of final goods and services produced during a period. Clean air and naturally available water provide valuable environmental services, but people usually do not buy them through a recorded market transaction. Therefore, no observable price is available for conventional GDP accounting. Option A is correct; they are not necessarily intermediate goods, foreign products, or government taxes. This also shows that GDP can understate welfare.

Related tags

Natural ServicesClean AirClean WaterGdp LimitationGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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