Question

In: Economics

Provide an example that GDP is not the perfect measurement of well-being or happiness of people...

  1. Provide an example that GDP is not the perfect measurement of well-being or happiness of people of the nation. Explain the reason.
  2. Explain how we can measure well-being or happiness of people of the nation better. Your suggestion can be alternative or supplemental measurement to GDP or improvement/modification of GDP measurement.  

Solutions

Expert Solution

It is absolutely correct that GDP is not the perfect measure of well being or happiness of the people of the Nation.

Reasons or examples are as follows.

GDP takes in to accounts the things that measures the ability to obtain inputs for a happy life but does not take in to calculation the things that makes the life happy directly.

GDP does not calculate the quality of education, intelligence, courage or wisdom of the people of the country.

GDP does not include the included the value of goods and services produced at home. When your Mother working as a chef at a restaurant prepares meal sold at that place is included in GDP but when your mother prepares same meal at home the value is not included in GDP.

Child care at Day care centres are included in GDP but when parents care their child at home the value is not included in GDP.

The Negative and positive externalities are also not included in GDP.

GDP excludes the quality of environment wich has a direct bearing on the happiness and welfare of people.

GDP does not calculate the distribution of income whether it is equal or causing inequality.A society with unequal distribution of income will have more unhappy people than the number of happy people..

Going through the above examples we can conclude that There are many many things contributing to happiness but not covered under GDP so it can not be termed as a good indicator of well being or happiness of people.

For example

GDP takes a positive count of cars we produce but does not account for emissions they generate.

It takes in to count the beverages filled with sugar syrup but does not takes in to account the harmful effects caused on health by this drink.

It includes the value of building but does not counts the deforestation caused for this purpose.

The better or alternative measure for the happiness and well being of the people is Real Per Capita GDP.

Real GDP is calculated at a constant price of base year and is divided by the population of the country to find out Real per capita GDP.

(Real GDP/Total population)=Real per capita GDP.

The Real GDP adjusted against the negative externalities is even a better measure to find out the welfare or well being.

The Human Development Index HDI which is a composite index of life expectancy, education and per capita income can be a good indicator for the well being and happiness of people. It scores the countries in to four tires of human development. It's score can be a very good indicator of well being and happiness.

There can be no perfect indicator for measuring happiness or welfare of people as it is a qualitative measure (attribute) and can never be calculated accurately by any means but can only be approximated combining various factors discussed above.


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