People in a village use clean air and water without payment. Why is their value generally not added to GDP?
Answer and explanation
Correct answer: They have no explicit market price
GDP records the market value of final goods and services produced during a period. Clean air and naturally available water provide valuable environmental services, but people usually do not buy them through a recorded market transaction. Therefore, no observable price is available for conventional GDP accounting. Option A is correct; they are not necessarily intermediate goods, foreign products, or government taxes. This also shows that GDP can understate welfare.
Frequently asked questions
What is the correct answer to this question?
They have no explicit market price
Why is this the correct answer?
GDP records the market value of final goods and services produced during a period. Clean air and naturally available water provide valuable environmental services, but people usually do not buy them through a recorded market transaction. Therefore, no observable price is available for conventional GDP accounting. Option A is correct; they are not necessarily intermediate goods, foreign products, or government taxes. This also shows that GDP can understate welfare.
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.
