In which example may actual welfare exceed the value recorded in GDP because of a positive externality?
Answer and explanation
Correct answer: Vaccination reducing disease spread in the community
A positive externality exists when an activity gives benefits to people who are not fully involved in the transaction. Vaccination protects the vaccinated person and also lowers the probability of infection for others, so its total social benefit can exceed the market value counted in GDP. Option C is therefore correct. Noise and deforestation create negative externalities, while private crime-prevention spending does not necessarily create a comparable broad external benefit.
Frequently asked questions
What is the correct answer to this question?
Vaccination reducing disease spread in the community
Why is this the correct answer?
A positive externality exists when an activity gives benefits to people who are not fully involved in the transaction. Vaccination protects the vaccinated person and also lowers the probability of infection for others, so its total social benefit can exceed the market value counted in GDP. Option C is therefore correct. Noise and deforestation create negative externalities, while private crime-prevention spending does not necessarily create a comparable broad external benefit.
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.
