If digital services are free to users and financed by advertising, what difference may exist between consumer welfare and GDP?
Answer and explanation
Correct answer: Consumer benefit may exceed the recorded market value
Consumer welfare depends on the utility or benefit received, not only on the price paid. A digital service priced at zero can provide substantial convenience, information, or entertainment, creating consumer surplus. Advertising revenue may record some market activity, but GDP may not fully capture users’ unpaid benefit. Thus option B is correct; A and D confuse zero price with zero value, while C is an unjustified universal claim.
Frequently asked questions
What is the correct answer to this question?
Consumer benefit may exceed the recorded market value
Why is this the correct answer?
Consumer welfare depends on the utility or benefit received, not only on the price paid. A digital service priced at zero can provide substantial convenience, information, or entertainment, creating consumer surplus. Advertising revenue may record some market activity, but GDP may not fully capture users’ unpaid benefit. Thus option B is correct; A and D confuse zero price with zero value, while C is an unjustified universal claim.
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.
