Question

state 2 limitations of national income as a measure of economic welfare

Answer 1

Limitations of using National income as an indicator are as follows:
(i) Non monetary exchanges
National income does not take into account those transactions that do not come under monetary terms. In less developed countries there are non-monetary exchanges, particularly in rural areas. Hence, these transactions remain outside the domain of National income. The household sector and volunteer sectors get ignored in National income.
(ii) Externalities
Increase in the national income is associated with increased levels of pollution, accidents, disasters, shortage and depletion of natural resources, etc. These factors affect human health and lead to ecological degradation. National income fails to consider the costs or valuations of such factors.