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If new technology improves product quality without changing price, why may GDP understate the welfare gain?

Answer and explanation

Correct answer: Because the full benefit of quality improvement may not appear in market value

GDP records the market value of production, so a quantity sold at the same price may contribute the same measured value even when its quality and usefulness improve. Consumers nevertheless receive greater satisfaction, durability, safety, or performance. Because these non-price quality gains are difficult to measure fully, GDP can understate the welfare increase. Option C captures this measurement limitation; the other choices are unsupported.

Related tags

TechnologyQuality ImprovementConsumer WelfareGdp MeasurementGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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