Briefly discuss four (4) limitations of using GDP per capita as a measure of economic wellbeing....

Briefly discuss four (4) limitations of using GDP per capita as a measure of economic wellbeing. [10 marks]

Expert Solution

GDP per capita is the market value of final goods and services produced by a country in an accounting year. It is a quantitative measure and is often criticized for not measuring the qualitative aspect of the same. The four limitations of using GDP per capita is as;

(1) GDP does not measure satisfaction for example leisure being an economic good. More is preferred to less and more hours devoted to leisure means less hour devoted to growing output and hence GDP would fall but with an increase in leisure, satisfaction would increase.

(2) GDP captures the production of goods and services and there are some goods which remain unsold and account in inventory stock but the presence of inventories in goods does not necessarily increase welfare but are included in GDP.

(3) real GDP is a better measure of well being of the country as it can be used as a medium of comparison among countries rather using per capita GDP.

(4) GDP ignores bad goods like pollution which is produced along with the goods and services which are harmful to the environment.

Rahul Sunny answered 2 years ago

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