How can pollution-causing production affect GDP and welfare?
Answer and explanation
Correct answer: GDP may rise while welfare falls
Production that causes pollution may have a market price and therefore add to measured GDP. However, the resulting air, water, or noise pollution can impose health costs, damage ecosystems, and reduce quality of life. These costs are negative externalities and may not be deducted from GDP. Thus GDP can rise while welfare falls, making option A correct. The other options incorrectly assume that production and welfare must move together.
Frequently asked questions
What is the correct answer to this question?
GDP may rise while welfare falls
Why is this the correct answer?
Production that causes pollution may have a market price and therefore add to measured GDP. However, the resulting air, water, or noise pollution can impose health costs, damage ecosystems, and reduce quality of life. These costs are negative externalities and may not be deducted from GDP. Thus GDP can rise while welfare falls, making option A correct. The other options incorrectly assume that production and welfare must move together.
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.
