Real GDP per capita rises but average working hours also rise sharply and leisure falls. Which conclusion is appropriate?
Answer and explanation
Correct answer: The welfare gain may be smaller than the GDP gain
Real GDP per capita indicates the average quantity of market production available per person, but it is not a complete welfare index. Leisure has value because people may prefer time away from work, and sharply longer working hours impose an opportunity cost. If output rises while leisure falls, part of the apparent income gain may be offset by reduced non-market well-being. Therefore, welfare may improve by less than GDP per capita.
Frequently asked questions
What is the correct answer to this question?
The welfare gain may be smaller than the GDP gain
Why is this the correct answer?
Real GDP per capita indicates the average quantity of market production available per person, but it is not a complete welfare index. Leisure has value because people may prefer time away from work, and sharply longer working hours impose an opportunity cost. If output rises while leisure falls, part of the apparent income gain may be offset by reduced non-market well-being. Therefore, welfare may improve by less than GDP per capita.
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.
