If digital services become free after previously being paid for what effect is possible on measured GDP and consumer welfare?
Answer and explanation
Correct answer: Measured GDP may fall while consumer welfare rises
GDP is based largely on market transactions and recorded prices, whereas consumer welfare also includes the usefulness or consumer surplus people receive. When a previously paid digital service becomes free, its measured market value may decline or disappear from GDP even though users receive the same or greater convenience. Therefore option D is correct; the other choices incorrectly assume GDP and welfare must move together.
Frequently asked questions
What is the correct answer to this question?
Measured GDP may fall while consumer welfare rises
Why is this the correct answer?
GDP is based largely on market transactions and recorded prices, whereas consumer welfare also includes the usefulness or consumer surplus people receive. When a previously paid digital service becomes free, its measured market value may decline or disappear from GDP even though users receive the same or greater convenience. Therefore option D is correct; the other choices incorrectly assume GDP and welfare must move together.
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.
