If pollution reduces people’s work capacity and raises medical spending, what is the possible effect on net welfare?
Answer and explanation
Correct answer: Net welfare may fall even though medical spending is added to GDP
GDP records market expenditure, so medical treatment purchased after pollution can increase measured output. But that spending may merely repair damage rather than create a corresponding improvement in well-being. Pollution can also reduce health, productivity, and working capacity. Consequently net welfare may fall even while defensive medical expenditure raises GDP, making C correct. A, B, and D ignore these distinctions.
Frequently asked questions
What is the correct answer to this question?
Net welfare may fall even though medical spending is added to GDP
Why is this the correct answer?
GDP records market expenditure, so medical treatment purchased after pollution can increase measured output. But that spending may merely repair damage rather than create a corresponding improvement in well-being. Pollution can also reduce health, productivity, and working capacity. Consequently net welfare may fall even while defensive medical expenditure raises GDP, making C correct. A, B, and D ignore these distinctions.
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.
