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If digital services become free after previously being paid for what effect is possible on measured GDP and consumer welfare?

Answer and explanation

Correct answer: Measured GDP may fall while consumer welfare rises

GDP is based largely on market transactions and recorded prices, whereas consumer welfare also includes the usefulness or consumer surplus people receive. When a previously paid digital service becomes free, its measured market value may decline or disappear from GDP even though users receive the same or greater convenience. Therefore option D is correct; the other choices incorrectly assume GDP and welfare must move together.

Related tags

GdpWelfareDigital-ServicesConsumer-SurplusMeasurementGdp And WelfareNational Income And Related AggregatesEconomics

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