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Sales of household pollution-control devices raise GDP. Why cannot this be treated as a pure welfare gain?

Answer and explanation

Correct answer: Because it may be defensive expenditure to avoid pollution damage

GDP counts the market value of final devices sold, but it does not subtract the original pollution damage that made households need defensive equipment. Such purchases may protect health or restore earlier living conditions rather than create an equivalent new gain in welfare. Therefore option C is correct. The devices can be final consumer goods, and neither all imports nor all consumer goods are excluded automatically.

Related tags

Pollution-ControlDefensive-ExpenditureGdp-WelfareConsumer-GoodsGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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