If NDP rises because the output of a polluting industry increases while environmental damage also rises, which conclusion is appropriate?
Answer and explanation
Correct answer: NDP shows output growth, but the welfare effect may be unclear
NDP records the value of measured domestic production after deducting depreciation, but it may not fully subtract every environmental cost caused by production. If a polluting industry expands, NDP can increase even as health, environmental quality, and people’s quality of life deteriorate. Thus, the net welfare effect cannot be determined from the rise in NDP alone.
Frequently asked questions
What is the correct answer to this question?
NDP shows output growth, but the welfare effect may be unclear
Why is this the correct answer?
NDP records the value of measured domestic production after deducting depreciation, but it may not fully subtract every environmental cost caused by production. If a polluting industry expands, NDP can increase even as health, environmental quality, and people’s quality of life deteriorate. Thus, the net welfare effect cannot be determined from the rise in NDP alone.
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.
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