If fuel sales rise because commuting time becomes longer in a city, what effect on GDP and welfare is possible?
Answer and explanation
Correct answer: GDP may rise but welfare may fall due to time loss and pollution
The governing concept is that GDP records market transactions but may omit external costs and lost non-market time. More fuel sales increase measured market output and can therefore raise GDP. Yet longer commutes consume leisure and family time, create stress, and may increase congestion and pollution. These costs can reduce welfare, so option B is correct. Options A and C are too certain, while D incorrectly excludes fuel sales from market production.
Frequently asked questions
What is the correct answer to this question?
GDP may rise but welfare may fall due to time loss and pollution
Why is this the correct answer?
The governing concept is that GDP records market transactions but may omit external costs and lost non-market time. More fuel sales increase measured market output and can therefore raise GDP. Yet longer commutes consume leisure and family time, create stress, and may increase congestion and pollution. These costs can reduce welfare, so option B is correct. Options A and C are too certain, while D incorrectly excludes fuel sales from market production.
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.
