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Question : 3
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"Management of a water polluting oil refinery says that the it (oil refinery) ensures welfare through its contribution to Gross Domestic Product."
Defend or refute the argument of management with respect to GDP as a welfare measure of the economy.
Defend or refute the argument of management with respect to GDP as a welfare measure of the economy.
Solution:
I refute the argument of management with respect to GDP as a welfare of the economy because :
GDP and welfare : Generally, GDP presents the picture of the whole economic system of the economy. But it is not a satisfaction of economic welfare, GDP and welfare are not related to each other because :
(i) Change in Price : If GDP increases due to increase in general price level then, it will not be reliable index of welfare.
(ii) Rate of population growth : If the rate of population growth is higher, then GDP rate will reduce the per capita availability of goods and services which will affect the economic welfare.
(iii) Distribution of GDP : Increase in GDP may be due to increase in production it may be possible improvement is not affect with economic welfare.
GDP and welfare : Generally, GDP presents the picture of the whole economic system of the economy. But it is not a satisfaction of economic welfare, GDP and welfare are not related to each other because :
(i) Change in Price : If GDP increases due to increase in general price level then, it will not be reliable index of welfare.
(ii) Rate of population growth : If the rate of population growth is higher, then GDP rate will reduce the per capita availability of goods and services which will affect the economic welfare.
(iii) Distribution of GDP : Increase in GDP may be due to increase in production it may be possible improvement is not affect with economic welfare.
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