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In which example may GDP understate a social benefit?

Answer and explanation

Correct answer: Vaccination reducing infection risk for others

The governing concept is a positive externality. Vaccination provides a private health benefit to the vaccinated person and also lowers the probability that other people will become infected. That spillover benefit may not be fully represented by the market payment included in GDP. Hence option C is correct. The other examples describe pollution, defensive spending or resource depletion, which are welfare costs or limitations rather than an understated external benefit.

Related tags

VaccinationExternal BenefitSocial WelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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