Private vehicle sales raised GDP in a city, but traffic congestion also increased greatly. What conclusion is appropriate?
Answer and explanation
Correct answer: GDP growth need not cause an equal rise in welfare
Vehicle purchases are market transactions and can increase measured GDP. However, heavier congestion creates external costs such as wasted travel time, extra fuel use, stress, and pollution. These costs may reduce welfare even though they are not fully deducted from GDP. Thus A is the balanced conclusion. B is false, C is too absolute because vehicles can provide benefits, and D ignores congestion’s social effects.
Frequently asked questions
What is the correct answer to this question?
GDP growth need not cause an equal rise in welfare
Why is this the correct answer?
Vehicle purchases are market transactions and can increase measured GDP. However, heavier congestion creates external costs such as wasted travel time, extra fuel use, stress, and pollution. These costs may reduce welfare even though they are not fully deducted from GDP. Thus A is the balanced conclusion. B is false, C is too absolute because vehicles can provide benefits, and D ignores congestion’s social effects.
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.
