If spending on pollution cleanup rises and NNP also rises, what caution is needed in drawing a welfare conclusion?
Answer and explanation
Correct answer: Welfare may not necessarily have risen despite higher NNP
Pollution-cleanup expenditure is counted as economic activity and can increase measured NNP. However, the expenditure may merely repair damage caused by pollution rather than provide an equivalent net improvement in people’s well-being. If the original environmental harm, health costs, and loss of amenities are not fully valued, higher NNP does not prove higher welfare. Thus, option A gives the necessary caution.
Frequently asked questions
What is the correct answer to this question?
Welfare may not necessarily have risen despite higher NNP
Why is this the correct answer?
Pollution-cleanup expenditure is counted as economic activity and can increase measured NNP. However, the expenditure may merely repair damage caused by pollution rather than provide an equivalent net improvement in people’s well-being. If the original environmental harm, health costs, and loss of amenities are not fully valued, higher NNP does not prove higher welfare. Thus, option A gives the necessary caution.
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.
