Why may pollution cost not be fully shown directly in GDP?
Answer and explanation
Correct answer: Because negative externalities may be difficult to measure separately
GDP records the monetary value of market production, but pollution is often a negative externality imposed on people who may not be involved in the transaction. The health, environmental and social costs of pollution may not have an observable market price or may be difficult to separate accurately. Consequently, GDP can increase while environmental welfare falls.
Frequently asked questions
What is the correct answer to this question?
Because negative externalities may be difficult to measure separately
Why is this the correct answer?
GDP records the monetary value of market production, but pollution is often a negative externality imposed on people who may not be involved in the transaction. The health, environmental and social costs of pollution may not have an observable market price or may be difficult to separate accurately. Consequently, GDP can increase while environmental welfare falls.
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.
