If a country's real GDP rises by (5%) while the estimated social cost of pollution rises by an amount equal to (7%) of real output which statement about net welfare is more appropriate?
Answer and explanation
Correct answer: Net welfare may fall if pollution costs exceed the output gain
The governing idea is that net welfare should consider both the benefits of output and the external costs created during production. A 5% real-output gain does not guarantee a welfare gain when pollution costs rise by an estimated 7% of output; the net effect may be negative, although exact welfare requires careful measurement. Option B is correct. A ignores costs, C denies externalities, and D incorrectly adds percentages.
Frequently asked questions
What is the correct answer to this question?
Net welfare may fall if pollution costs exceed the output gain
Why is this the correct answer?
The governing idea is that net welfare should consider both the benefits of output and the external costs created during production. A 5% real-output gain does not guarantee a welfare gain when pollution costs rise by an estimated 7% of output; the net effect may be negative, although exact welfare requires careful measurement. Option B is correct. A ignores costs, C denies externalities, and D incorrectly adds percentages.
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.
