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If output rises but most of the increase is in goods people consider harmful, what conclusion is appropriate?

Answer and explanation

Correct answer: GDP may rise but the welfare effect is uncertain because of the composition of output

GDP is an accounting measure that adds the market value of legal final goods and services; it does not judge whether their social or moral value is beneficial. Therefore, if output growth is concentrated in harmful or demerit goods, measured GDP may rise while welfare rises less, stays unchanged or even falls after considering social costs. The composition of output matters, so option D is correct.

Related tags

GdpWelfareComposition-Of-OutputDemerit-GoodsGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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