If a production process harms workers' health but increases demand for medical services, what may GDP show?
Answer and explanation
Correct answer: Growth from both production and medical spending while net welfare may fall
GDP adds the market value of production and paid medical services, but it does not subtract every non-market cost such as pain, reduced health, lost leisure, or diminished quality of life. Consequently, harmful production can raise output and the resulting medical expenditure can also be recorded as activity, even while workers’ net welfare declines. Option C is correct. This illustrates why gross market activity is not identical to social welfare.
Frequently asked questions
What is the correct answer to this question?
Growth from both production and medical spending while net welfare may fall
Why is this the correct answer?
GDP adds the market value of production and paid medical services, but it does not subtract every non-market cost such as pain, reduced health, lost leisure, or diminished quality of life. Consequently, harmful production can raise output and the resulting medical expenditure can also be recorded as activity, even while workers’ net welfare declines. Option C is correct. This illustrates why gross market activity is not identical to social welfare.
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.
