In which example may GDP understate a social benefit?
Answer and explanation
Correct answer: Vaccination reducing infection risk for others
The governing concept is a positive externality. Vaccination provides a private health benefit to the vaccinated person and also lowers the probability that other people will become infected. That spillover benefit may not be fully represented by the market payment included in GDP. Hence option C is correct. The other examples describe pollution, defensive spending or resource depletion, which are welfare costs or limitations rather than an understated external benefit.
Frequently asked questions
What is the correct answer to this question?
Vaccination reducing infection risk for others
Why is this the correct answer?
The governing concept is a positive externality. Vaccination provides a private health benefit to the vaccinated person and also lowers the probability that other people will become infected. That spillover benefit may not be fully represented by the market payment included in GDP. Hence option C is correct. The other examples describe pollution, defensive spending or resource depletion, which are welfare costs or limitations rather than an understated 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.
