If new technology improves product quality without changing price, why may GDP understate the welfare gain?
Answer and explanation
Correct answer: Because the full benefit of quality improvement may not appear in market value
GDP records the market value of production, so a quantity sold at the same price may contribute the same measured value even when its quality and usefulness improve. Consumers nevertheless receive greater satisfaction, durability, safety, or performance. Because these non-price quality gains are difficult to measure fully, GDP can understate the welfare increase. Option C captures this measurement limitation; the other choices are unsupported.
Frequently asked questions
What is the correct answer to this question?
Because the full benefit of quality improvement may not appear in market value
Why is this the correct answer?
GDP records the market value of production, so a quantity sold at the same price may contribute the same measured value even when its quality and usefulness improve. Consumers nevertheless receive greater satisfaction, durability, safety, or performance. Because these non-price quality gains are difficult to measure fully, GDP can understate the welfare increase. Option C captures this measurement limitation; the other choices are unsupported.
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.
