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    Competency Based Questions National Income-1

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    National income important question

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    Competency Based Questions National Income-1

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    harshit.19850
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    National income important question

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    competency based questions national income-1

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    National income important question

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2 views3 pages

    Competency Based Questions National Income-1

    Uploaded by

    harshit.19850
    National income important question

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    COMPETENCY BASED QUESTIONS

    NATIONAL INCOME
    Read the following extract carefully and answer the questions that follow:

    The primary difference between nominal GDP and real GDP is that real GDP is adjusted for
    inflation or deflation, providing a more accurate measure of economic growth, while
    nominal GDP measures an economy's size at current market prices.
    Both measures have their advantages and limitations, and understanding these differences
    is essential for making informed decisions in economics.
    As the global economy continues to evolve, new methods for measuring economic
    performance may emerge. For now, understanding the real and nominal GDP formulas, and
    the differences between the two remains valuable for navigating the world of trading.
    A. What is the major difference between real and nominal GDP?
    B. How can we transform nominal GDP into real GDP?
    C. Which of the two-real or nominal GDP is a better indicator of economic growth and
    why?
    Read the following extract carefully and answer the questions that follow

    In the case of pollution-the traditional example of a negative externality-a polluter makes


    decisions based only on the direct cost of and profit opportunity from production and does
    not consider the indirect costs to those harmed by the pollution. The social-that is total
    costs of production are larger than the private costs. Those indirect costs which are not
    borne by the producer or user-include decreased quality of life, say in the case of a home
    owner near a smokestack, higher health care costs, and forgone production opportunities,
    for example when pollution harms activities such as tourism. In short, when externalities are
    negative, private costs are lower than social costs.
    There are also positive externalities, and here the issue is the differences between private
    and social gains. For example, research and development (R&D) activities are widely
    considered to have positive effects beyond those enjoyed by the producer-typically, the
    company that leads the research. This is because R&D adds to the general body of
    knowledge, which contributes to other discoveries and developments. However, the private
    returns from selling products based on its own R&D typically do not include the returns of
    others who benefitted indirectly with positive externalities, private returns are smaller than
    social returns
    When there are differences between private and social costs or private and social returns,
    the main problem is that market outcomes may not be efficient. To promote the well-being
    of all members of society, social returns should be maximized and social costs minimized.
    Unless all costs and benefits are internalized by households and firms making buying and
    production decisions, market outcomes can lead to underproduction or overproduction in
    terms of a society's overall condition (what economists call the "welfare perspective")
    1. Define externalities
    2. How do externalities act as a limitation of GDP as an index of welfare?
    3. Give an example of positive and negative externality each.

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