In an economy output of polluting industries rose and spending on pollution treatment also increased. What is the likely effect on GDP and welfare?
Answer and explanation
Correct answer: GDP may rise from both activities but welfare may not necessarily rise
The governing concept is defensive expenditure and the difference between GDP and welfare. Market-valued pollution-producing output enters GDP, and paid treatment services can also enter GDP. However, treatment may merely repair or offset environmental harm rather than create a net improvement in well-being. Thus option A is correct. The words “must” in options B and D are unjustified, and option C ignores recorded market expenditure.
Frequently asked questions
What is the correct answer to this question?
GDP may rise from both activities but welfare may not necessarily rise
Why is this the correct answer?
The governing concept is defensive expenditure and the difference between GDP and welfare. Market-valued pollution-producing output enters GDP, and paid treatment services can also enter GDP. However, treatment may merely repair or offset environmental harm rather than create a net improvement in well-being. Thus option A is correct. The words “must” in options B and D are unjustified, and option C ignores recorded market expenditure.
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.
