When pollution cleanup expenditure rises in GDP, what should be kept in mind in welfare analysis?
Answer and explanation
Correct answer: Expenditure may raise GDP but pollution damage may reduce welfare
Expenditure on pollution-control or cleanup services may involve current production, so it can increase measured GDP. However, GDP may not subtract the full health, environmental, and quality-of-life damage caused by the pollution itself. Thus, higher GDP from cleanup activity does not automatically mean higher welfare. Environmental costs must be considered separately when evaluating social well-being.
Frequently asked questions
What is the correct answer to this question?
Expenditure may raise GDP but pollution damage may reduce welfare
Why is this the correct answer?
Expenditure on pollution-control or cleanup services may involve current production, so it can increase measured GDP. However, GDP may not subtract the full health, environmental, and quality-of-life damage caused by the pollution itself. Thus, higher GDP from cleanup activity does not automatically mean higher welfare. Environmental costs must be considered separately when evaluating social well-being.
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.
