'GDP as an index of welfare may understate or overstate welfare'. Explain the statement using examples of a positive and a negative externality.

Open in App

Solution

GDP doesn't account for externalities.
Externalities are basically:
Positive Externality: Example: Saving commuting time due to construction of a fly-over, increases welfare, GDP as an index understates welfare.
Negative Externality: Example: Pollution from factories, decreases welfare, GDP overstates welfare.

Suggest Corrections

Similar questions

The use of biological warfare poses a danger to the international community is called as ___________.

Join BYJU'S Learning Program