Table of Contents
Why is per capita income not a good measure of welfare?
Per capita income is an average and this average may not represent the standard of living of the people, if the increased national income goes to the few rich instead of giving to the many poor. Thus unless national income is evenly distributed, per capita income cannot serve as a satisfactory indicator of development.
Why is national income not a true measure of social welfare?
GNP is not a satisfactory measure of economic welfare because the estimates of national income do not include certain services and production activities which affect welfare.
What is a good measure of social welfare?
Welfare has economic components (Pigou, 1962) and therefore GDP can be a measure of economic social welfare. Secondly, a reasonable assumption is that social welfare is a function of consumption and the supply and production of goods, implying GDP is a suitable measure of social welfare.
What are the disadvantages of per capita income?
1) It does not indicate the disparities in the distribution of income e.g. it does not show the wide gap between the incomes of very rich and the very poor people. It is just a mean value so, it does not reflect the income distribution. 2) It does not reflect the living standard of the people of a specific area.
What are the disadvantages of using per capita income as the criteria for comparing the development in different countries?
(i) Per capital income is the average income of a country. (ii) Per capital income criteria takes into account only the economic aspect of life and ignores the social, aspect of life. (iii) Per capita income criteria ignores education, health, life expectancy, sanitation etc.
What are the limitations of national income estimates as a measure of welfare?
Welfare is NOT Measured: GDP only measures the market activity and does not take welfare into account. The economic activity of a country could rise, while welfare could possibly have fallen.
What are the problems of using per capita income as measure of degree of development?
It is vulnerable to change in prices i.e Inflation. It might increase due to rise in prices without any change in the physical output. Population growth affects the per capita income. It does not take into account the welfare of people and hence fails to reflec.
What is the major drawback in using per capita income for comparison between countries?
Critics. Critics often cite the following drawbacks to the use of per capita income: Comparisons of per capita income over time need to consider inflation. Without adjusting for inflation, figures tend to overstate the effects of economic growth.
What are the drawbacks of per capita income?
Limitations of per capita income are : (i) A rise in per capita income is due to rise in prices and not due to increase in physical output, it is not a reliable index of economic development. (ii) National income rises but its distribution makes the rich richer and the poor poorer.
Why is GDP not a good measure of welfare?
GDP was not designed to assess welfare or the well being of citizens. It was designed to measure production capacity and economic growth. Yet policymakers and economists often treat GDP as an all-encompassing unit to signify a nation’s development, combining its economic prosperity and societal well-being.
What is the relationship between economic growth and social welfare?
Economic growth usually goes hand in hand with increased exploitation of both renewable and non-renewable resources. Due to this overuse, more and more negative externalities arise (e.g. pollution, overfishing) and social welfare will decrease as a result. This effect is not included in GDP at all.
How does GDP per capita affect well-being?
GDP isn’t adjusted for pollution costs. If two economies have the same GDP per capita, but one has polluted air and water while the other doesn’t, well-being will be different but GDP per capita won’t capture it.
Is GDP per capita a good measure of development?
Yet policymakers and economists often treat GDP, or GDP per capita in some cases, as an all-encompassing unit to signify a nation’s development, combining its economic prosperity and societal well-being. As a result, policies that result in economic growth are seen to be beneficial for society.