Topics
CISCE: Class 12
Key Points: National Income as a Measure of Economic Welfare
- GNP is not a perfect measure of welfare because it ignores many important factors.
- It excludes leisure, quality of life, non-market activities, and external effects like pollution.
- GNP does not consider what type of goods are produced (necessities vs luxuries).
- Higher GNP may reduce welfare due to pollution, congestion, or longer working hours.
- Hence, national income is a poor indicator of social welfare.
- To improve this, Nordhaus and Tobin proposed MEW (Measure of Economic Welfare), which adjusts GNP by adding leisure and non-market activities and deducting harmful expenditures.
