Question

GDP is not considered as a better measure of development as it does not consider non market transcations. comment​

Answer 1

Answer:

GDP is not considered as a better measure of economic development, because of it's Limitations as an index of welfare:

• Distribution of income: if distribution of income turns equal, the GDP growth fails to reflect a rise in social welfare. India is facing this situation at present. While per capita GDP is rising, starvation of deaths are hitting the headlines more than ever before.

• Compostion of GDP: Composition of GDP may not be welfare orientated. for example increase in the production of defence goods doesn't lead to increase in social welfare.

• Non Monetary exchanges: In rural economies barter system of exchange is still prevails to some extent. Payment of farm labour are still made in kind rather than in cash. All such transactions remains unrecorded. This causes underestimation of GDP.

• Externalities: Externalities refers to good and bad impacts of an economic activity without paying a price or penalty for that. there are both positive as well as negative externalities.