If polluting production raises NDP by 700 crore rupees but environmental damage is estimated at 900 crore rupees, what is the appropriate conclusion?
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 measure. Conventional NDP records the value of market production, so it rises by 700 crore rupees, but it does not automatically subtract every environmental cost. If the damage is 900 crore rupees, the social cost may exceed the production gain, causing net welfare to fall. Thus option A is correct; the other statements confuse output accounting with welfare accounting.
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 measure. Conventional NDP records the value of market production, so it rises by 700 crore rupees, but it does not automatically subtract every environmental cost. If the damage is 900 crore rupees, the social cost may exceed the production gain, causing net welfare to fall. Thus option A is correct; the other statements confuse output accounting with welfare accounting.
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.
