Why may the full damage of pollution not be shown in GDP?
Answer and explanation
Correct answer: Because many external costs do not appear in market value
GDP records the market value of measured final production, not every social cost created during production or consumption. Pollution is a negative externality: its health, environmental, and cleanup costs may not be fully included in market prices. Consequently, GDP can remain high while welfare falls, so option A is correct.
Frequently asked questions
What is the correct answer to this question?
Because many external costs do not appear in market value
Why is this the correct answer?
GDP records the market value of measured final production, not every social cost created during production or consumption. Pollution is a negative externality: its health, environmental, and cleanup costs may not be fully included in market prices. Consequently, GDP can remain high while welfare falls, so option A 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.
