Why does the composition of GDP affect welfare?
Answer and explanation
Correct answer: Useful and harmful goods of equal value may have different welfare effects
GDP aggregates the monetary value of final goods and services, but equal monetary values do not imply equal social benefits. Education, nutritious food or preventive care may improve capabilities, whereas pollution-generating or harmful goods may impose social costs. Consequently, the composition and purpose of production matter for welfare, not merely its total value. C states this distinction accurately; A, B and D incorrectly treat all output as socially equivalent.
Frequently asked questions
What is the correct answer to this question?
Useful and harmful goods of equal value may have different welfare effects
Why is this the correct answer?
GDP aggregates the monetary value of final goods and services, but equal monetary values do not imply equal social benefits. Education, nutritious food or preventive care may improve capabilities, whereas pollution-generating or harmful goods may impose social costs. Consequently, the composition and purpose of production matter for welfare, not merely its total value. C states this distinction accurately; A, B and D incorrectly treat all output as socially equivalent.
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.
