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In an economy output of polluting industries rose and spending on pollution treatment also increased. What is the likely effect on GDP and welfare?

Answer and explanation

Correct answer: GDP may rise from both activities but welfare may not necessarily rise

The governing concept is defensive expenditure and the difference between GDP and welfare. Market-valued pollution-producing output enters GDP, and paid treatment services can also enter GDP. However, treatment may merely repair or offset environmental harm rather than create a net improvement in well-being. Thus option A is correct. The words “must” in options B and D are unjustified, and option C ignores recorded market expenditure.

Related tags

PollutionDefensive ExpenditureGdp WelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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