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The government provides clean drinking water free of charge, and its production cost is included in GDP. Why is it still difficult to assess the welfare it provides precisely?

Answer and explanation

Correct answer: Because output is valued by its cost, which may differ from the benefit citizens receive

Non-market government services are commonly valued in national accounts by their production costs, such as wages and materials, because they have no observable selling price. Those costs do not necessarily equal the benefit citizens receive from the service. Thus, the recorded value may not measure its welfare contribution precisely, making C correct.

Related tags

Government ServicesNon-Market OutputGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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