Gdp Measures Output with No Regard for the Quality of Such, Therefore Rendering Its Value as a Mark of Economic Welfare Substantially Flawed

[pic 1]

Subject: Business Environment

Tutor: Michael Brian Brightman

Assignment: Essay

Title: GDP measures output with no regard for the quality of such, therefore rendering its value as a mark of economic welfare substantially flawed.  Critically discuss this statement.

Name: Wu Su (G20590005)

1. Introduction

''GDP measures output with no regard for the quality of such, therefore rendering its value as a mark of economic welfare substantially flawed''. In my opinion, I would say this statement is correct. This dissertation is aimed why rendering the value of GDP as a mark of economic welfare substantially flawed through analysis.

2. What is GDP?

'GDP (Gross Domestic Product) measures the total final market value of all goods and services produced within a country during a given period'.  

GDP is the most direct index to evaluate a country's economic situation and is divided into four expenditure categories: consumption, investment, government spending and net exports

3. GDP measures output with no regard for the quality.

3.1 GDP cannot reflect the economic growth reasonable.

First of all, the GDP is not fully reflecting public services as an important role in the economic development. Administrative services provided by government departments, such as public security service, education, medical and health services, public services environmental protection services play an important role in the economic development. GDP is calculated according to market activity, market price it is its standard of measuring economic activities. However, public services provided by government is not contained in market price, at present internationally practice is to use the cost of public services to measure its value but these costs can not accurately reflect the public services as an important role in the development of the economy.  

Secondly, GDP cannot reflect the quality difference of economic development. The quality of the products in different countries is different especially there are significant difference between developed countries and developing countries. What's more, the technical level labor productivity, capital productivity and resource productivity are also different in different countries. GDP did not reflect the differences in the quality of economic development.

Thirdly, GDP does not accurately reflect the growth in wealth. The economic strength of a country largely depends on its stock of wealth, not just the current new wealth; in the same way, people's standard of living largely depends on its stock of wealth, not just the current new wealth. The poor quality of economic growth would lead to huge loss and waste of wealth as well as drop in wealth. Under this circumstances, the stock of wealth cannot keep synchronously growth with economic growth, thus GDP does not accurately reflect the growth in wealth.