Question

“Management of a water polluting oil refinery says that it (oil refinery) ensures welfare through its contribution to Gross Domestic Product.”

Defend or refute the argument of management with respect to GDP as a welfare measure of the economy.

Answer 1

Although the industry adds to the country’s GDP, the management’s claim that it promotes welfare is not entirely valid. The oil refinery process pollutes water, creating a negative externality that harms the environment. Therefore, GDP cannot be considered a true measure of economic welfare, as it does not account for such environmental externalities.