Question

Measuring Economic Performance (chapter 11)

Q- 1(a) What is the importance of measuring per capita GDP? EXPLAIN CEARLY WITH EXAMPLE PLEASE

Q- 2(b) How do pollution and crime affect GDP?

Answer 1

Ques 1

GDP per capita is obtained by dividing GDP by total number of people in the country. It is a measure of economic output of a country. For Example Suppose GDP of hypothetical economy Prosperland is $450 billion and its population is 20 billion. Then per capita GDP for Prosperland will be 450 / 20 = $22.5 billion. In simple words it tells how much economic production value can be attributed to each individual citizen of economy.

Importance of GDP per capita

• It is efficient measure to know the prosperity of nations. The prosperity of a country and its economic growth can be known by GDP per capita.
• Developed, rich and industrialized countries have higher GDP per capita compared to poor nations.
• It is widely used on universal basis because it is very simple to calculate and use. The components of GDP per capita are being tracked on regular basis.
• This analysis help to understand how the population of country influences the growth of economy.
• If the per capita GDP is growing along with stable growth of population, this means that country is experiencing technological progress ie it is producing more with same population.
• A country may have a high GDP per capita with small population. This means that economy is self sufficient and have abundant special resources.
• A negative GDP per capita indicates that economic growth is consistent but growth of population is faster than growth of GDP.

To conclude GDP per capita is one of best measures of economic prosperity. It is one of the best measures to compare the economic prosperity among different countries.

Ques 2

GDP is an important measure of well being but it is flawed measure of well being. The costs of pollution and crime rates are not included in GDP.  GDP is not adjusted for changed in crime, pollution levels and other social problems. For Example, An economy facing the fear of thefts due to increase crimes, will advocate the use of burglar alarms. Such usage of alarms will increase the GDP of economy but in actual the standard of living is deteriorated as people have to live in fear of crime. Such crime is not measured by GDP. GDP is not adjusted for pollution and other negative effects of production. GDP is not reduced by pollution or other negative effects that occur during the process of production. Environmental pollution, water contamination, depletion of resources are not included in GDP. The economic value or cost of pollution and depleted resources do not form part of GDP. To conclude GDP has certain limitations and it cannot be called as the best measure of well being.