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Economic Theory
GDP
Per capita GDP . (3.11)
Population
GDP is an indicator of a society’s standard of living, but it is only a
rough indicator. GDP does not directly take account of leisure,
environmental quality, levels of health and education, activities conducted
outside the market, changes in inequality of income, increases in variety,
increases in technology, or the (positive or negative) value that society
may place on certain types of output
As we have seen, GDP measures both the economy’s total income and
the economy’s total expenditure on goods and services. Thus, GDP per
person tells us the income and expenditure of the average person in the
economy. Because most people would prefer to receive higher income and
enjoy higher expenditure, GDP per person seems a natural measure of the
economic well-being of the average individual.
The answer is that a large GDP does in fact help us to lead a good life.
GDP does not measure the health of our children, but nations with larger
GDP can afford better health care for their children. GDP does not
measure the quality of their education, but nations with larger GDP can
afford better educational systems. GDP does not measure the beauty of our
poetry, but nations with larger GDP can afford to teach more of their
citizens to read and to enjoy poetry. GDP does not take account of our
intelligence, integrity, courage, wisdom, or devotion to country, but all of
these laudable attributes are easier to foster when people are less
concerned about being able to afford the material necessities of life. In
short, GDP does not directly measure those things that make life
worthwhile, but it does measure our ability to obtain the inputs into a
worthwhile life.
GDP is not, however, a perfect measure of well-being. Some things
that contribute to a good life are left out of GDP. One is leisure. Suppose,
for instance, that everyone in the economy suddenly started working every
day of the week, rather than enjoying leisure on weekends. More goods
and services would be produced, and GDP would rise. Yet, despite the
increase in GDP, we should not conclude that everyone would be better
off. The loss from reduced leisure would offset the gain from producing
and consuming a greater quantity of goods and services.
Because GDP uses market prices to value goods and services, it
excludes the value of almost all activity that takes place outside of
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