An industry raises production but contaminates a nearby water source. What should be done while assessing net welfare?
Answer and explanation
Correct answer: The cost of environmental damage should be deducted
The governing concept is social cost: production can create benefits for consumers and firms while imposing pollution costs on nearby residents and ecosystems. A welfare assessment should therefore consider the net effect, adding the value of useful output but deducting the cost of environmental damage, including health and restoration costs where measurable. Hence option C is correct; A and D overstate benefits, while B misclassifies harm as income.
Frequently asked questions
What is the correct answer to this question?
The cost of environmental damage should be deducted
Why is this the correct answer?
The governing concept is social cost: production can create benefits for consumers and firms while imposing pollution costs on nearby residents and ecosystems. A welfare assessment should therefore consider the net effect, adding the value of useful output but deducting the cost of environmental damage, including health and restoration costs where measurable. Hence option C is correct; A and D overstate benefits, while B misclassifies harm as income.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
