If a free digital service has a zero market price, which limitation of the GDP deflator appears?
Answer and explanation
Correct answer: The full value of its consumer benefit may not appear
The GDP deflator is constructed from prices and quantities of measured domestic output. A free digital service can provide substantial convenience, information, or consumer surplus even when its recorded market price is zero. Because no conventional transaction price captures that benefit, the deflator and GDP statistics may fail to reflect its full value. Thus option A is correct; the other choices do not follow from a zero price.
Frequently asked questions
What is the correct answer to this question?
The full value of its consumer benefit may not appear
Why is this the correct answer?
The GDP deflator is constructed from prices and quantities of measured domestic output. A free digital service can provide substantial convenience, information, or consumer surplus even when its recorded market price is zero. Because no conventional transaction price captures that benefit, the deflator and GDP statistics may fail to reflect its full value. Thus option A is correct; the other choices do not follow from a zero price.
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.
