GDP does not fully reflect the damage caused by over-exploitation of natural resources. Which limitation of GDP does this illustrate?
Answer and explanation
Correct answer: GDP does not fully measure environmental costs
GDP measures the market value of final goods and services produced, but it does not adequately value the depletion of forests, minerals, clean air, water, or other natural capital. Pollution and ecological damage may therefore reduce real welfare without reducing measured GDP. Hence, this is a limitation related to environmental costs and sustainable welfare.
Frequently asked questions
What is the correct answer to this question?
GDP does not fully measure environmental costs
Why is this the correct answer?
GDP measures the market value of final goods and services produced, but it does not adequately value the depletion of forests, minerals, clean air, water, or other natural capital. Pollution and ecological damage may therefore reduce real welfare without reducing measured GDP. Hence, this is a limitation related to environmental costs and sustainable 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.
