If polluting production raises NDP by 500 crore rupees but estimated environmental damage is 650 crore rupees, which statement about conventional NDP and welfare is appropriate?
Answer and explanation
Correct answer: Conventional NDP rises but net welfare may fall
The governing concept is the limitation of conventional NDP as a welfare indicator. Market production generally increases measured NDP by ₹500 crore, but conventional accounting may not deduct the full external environmental cost. If damage is ₹650 crore, the unrecorded social loss can exceed the measured gain, so welfare may fall. Option A is correct; the other statements confuse output measurement with welfare or depreciation.
Frequently asked questions
What is the correct answer to this question?
Conventional NDP rises but net welfare may fall
Why is this the correct answer?
The governing concept is the limitation of conventional NDP as a welfare indicator. Market production generally increases measured NDP by ₹500 crore, but conventional accounting may not deduct the full external environmental cost. If damage is ₹650 crore, the unrecorded social loss can exceed the measured gain, so welfare may fall. Option A is correct; the other statements confuse output measurement with welfare or depreciation.
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.
