Sales of household pollution-control devices raise GDP. Why cannot this be treated as a pure welfare gain?
Answer and explanation
Correct answer: Because it may be defensive expenditure to avoid pollution damage
GDP counts the market value of final devices sold, but it does not subtract the original pollution damage that made households need defensive equipment. Such purchases may protect health or restore earlier living conditions rather than create an equivalent new gain in welfare. Therefore option C is correct. The devices can be final consumer goods, and neither all imports nor all consumer goods are excluded automatically.
Frequently asked questions
What is the correct answer to this question?
Because it may be defensive expenditure to avoid pollution damage
Why is this the correct answer?
GDP counts the market value of final devices sold, but it does not subtract the original pollution damage that made households need defensive equipment. Such purchases may protect health or restore earlier living conditions rather than create an equivalent new gain in welfare. Therefore option C is correct. The devices can be final consumer goods, and neither all imports nor all consumer goods are excluded automatically.
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.
