Free digital services save people's time and money. Why may GDP understate this benefit?
Answer and explanation
Correct answer: Because a free service is recorded at little or no market value
The governing concept is that GDP records the market value of current production, not every benefit received by consumers. A free digital service may save time, reduce travel or provide information, creating substantial consumer surplus, but its direct transaction price can be zero. Consequently, much of its value is absent from measured GDP. Options A and B are false, and time saving normally supports rather than reduces welfare.
Frequently asked questions
What is the correct answer to this question?
Because a free service is recorded at little or no market value
Why is this the correct answer?
The governing concept is that GDP records the market value of current production, not every benefit received by consumers. A free digital service may save time, reduce travel or provide information, creating substantial consumer surplus, but its direct transaction price can be zero. Consequently, much of its value is absent from measured GDP. Options A and B are false, and time saving normally supports rather than reduces welfare.
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.
