If a family previously cooked at home and now buys the same meals from the market what happens other things equal?
Answer and explanation
Correct answer: GDP will rise but the actual welfare change may be unclear
GDP follows the production boundary and records market transactions. When the family purchases meals, the restaurant or supplier provides a priced market service that is included in measured output. Earlier, the family’s own unpaid cooking was generally non-market household production and was not counted in GDP. The change can therefore raise GDP, but welfare is uncertain because convenience, cost, time, and satisfaction may change differently.
Frequently asked questions
What is the correct answer to this question?
GDP will rise but the actual welfare change may be unclear
Why is this the correct answer?
GDP follows the production boundary and records market transactions. When the family purchases meals, the restaurant or supplier provides a priced market service that is included in measured output. Earlier, the family’s own unpaid cooking was generally non-market household production and was not counted in GDP. The change can therefore raise GDP, but welfare is uncertain because convenience, cost, time, and satisfaction may change differently.
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.
