Which of the following is a limitation of GDP as a measure of welfare?
Answer and explanation
Correct answer: It does not adequately deduct environmental damage
GDP adds the market value of final goods and services produced within domestic territory, but it generally does not subtract all costs imposed by pollution, resource depletion, or ecological damage. Production can therefore increase measured GDP while reducing health and environmental quality. Option C identifies this welfare limitation. Options A, B, and D describe features of GDP accounting rather than the specific failure to reflect environmental costs.
Frequently asked questions
What is the correct answer to this question?
It does not adequately deduct environmental damage
Why is this the correct answer?
GDP adds the market value of final goods and services produced within domestic territory, but it generally does not subtract all costs imposed by pollution, resource depletion, or ecological damage. Production can therefore increase measured GDP while reducing health and environmental quality. Option C identifies this welfare limitation. Options A, B, and D describe features of GDP accounting rather than the specific failure to reflect environmental costs.
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.
