Question

Why does the GDP maximization not always equal to better wellbeing? Give two examples and explain your argument.

 

Answer 1

GDP is the measure of the market values of all goods and services produced in an economy in a given year. Therefore, GDP reflects the volume of economic activities and the total income earned by people in an economy. Even though GDP measures total production and total income, these figures do not always reflect the true measures of wellbeing of people. Therefore, maximization of GDP does not always mean better wellbeing of people. For example, a country might produce a high amount of good and services but at the same time, the high amount of economic activities might result in high air pollution. Air pollution deteriorates public health which is an important measure of well being of people. Secondly, high GDP might also result in environmental degradation and resource depleting which makes economic development in the future unsustainable. Environmental degradation also reduces wellbeing of people. Therefore, maximization of GDP does not always mean better wellbeing of people.