The government provides clean drinking water free of charge, and its production cost is included in GDP. Why is precise welfare assessment still difficult?
Answer and explanation
Correct answer: Because output is measured by cost, while the actual benefit to citizens may differ
Many non-market government services have no observable selling price, so national accounts commonly value their output by the cost of inputs such as wages and materials. That accounting cost may not equal the usefulness, quality, accessibility, or health benefit received by citizens. Clean water can generate benefits larger or smaller than its recorded cost, making welfare assessment imperfect. Hence C is correct.
Frequently asked questions
What is the correct answer to this question?
Because output is measured by cost, while the actual benefit to citizens may differ
Why is this the correct answer?
Many non-market government services have no observable selling price, so national accounts commonly value their output by the cost of inputs such as wages and materials. That accounting cost may not equal the usefulness, quality, accessibility, or health benefit received by citizens. Clean water can generate benefits larger or smaller than its recorded cost, making welfare assessment imperfect. Hence C is correct.
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.
