Why is GDP an imperfect measure of economic well-being? What types of goods and services does GDP not measure? Even if GDP these types of goods and services are included in GDP, why would it still be an imperfect measure of economic well-being?

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Business

Edith Bonilla

3 February, 08:53

Why is GDP an imperfect measure of economic well-being? What types of goods and services does GDP not measure? Even if GDP these types of goods and services are included in GDP, why would it still be an imperfect measure of economic well-being?

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Answers (1)

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Rodney Pitts · Answer 1

GDP is an imperfect measure as it does not include second-hand goods, household production, and the underground economy.

Even it included these goods and services, it does not consider the value of pollution, crime, income inequality, etc.

Explanation:

GDP is not a perfect measure of economic well-being as it has a number of limitations. It only includes the value of final goods and services produced in an economy.

It does not include selling of pre-owned goods. It also does not include the value of goods and services produced at home as they do not involve an economic transaction.

Apart from these goods and services, it does not consider the value of pollution or crime or income inequality, etc. GDP may be a good measure of economic growth but economic growth does not essentially mean economic welfare.