If a paid domestic worker's wage is included in GDP but unpaid household work by a family member is not, which limitation does this show?
Answer and explanation
Correct answer: Neglect of non-market services
GDP records the market value of currently produced final goods and services. A paid domestic worker provides a service exchanged in the market, so the wage is counted. Unpaid household work usually has no observable market transaction and is therefore omitted, even though it provides real usefulness and may improve household welfare. This illustrates that GDP can understate welfare by neglecting non-market services.
Frequently asked questions
What is the correct answer to this question?
Neglect of non-market services
Why is this the correct answer?
GDP records the market value of currently produced final goods and services. A paid domestic worker provides a service exchanged in the market, so the wage is counted. Unpaid household work usually has no observable market transaction and is therefore omitted, even though it provides real usefulness and may improve household welfare. This illustrates that GDP can understate welfare by neglecting non-market services.
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.
