If a rich household hires a domestic worker, the service enters GDP, but the same work done by a family member generally does not. Which limitation does this show?
Answer and explanation
Correct answer: The problem of market-based valuation
GDP generally values production through market transactions or imputations with observable prices. When a household hires a domestic worker, a paid service creates recorded income and expenditure; when a family member performs the same task unpaid, it is usually outside measured GDP. This unequal treatment shows the limitation of market-based valuation and the omission of non-market household work. Therefore option B is correct, not depreciation, borders, or double counting.
Frequently asked questions
What is the correct answer to this question?
The problem of market-based valuation
Why is this the correct answer?
GDP generally values production through market transactions or imputations with observable prices. When a household hires a domestic worker, a paid service creates recorded income and expenditure; when a family member performs the same task unpaid, it is usually outside measured GDP. This unequal treatment shows the limitation of market-based valuation and the omission of non-market household work. Therefore option B is correct, not depreciation, borders, or double counting.
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.
