2.2 Limitations of GDP
GDP misses nonmarket work, the underground economy, leisure, environmental damage, and how income is distributed, so it is an imperfect measure of well-being.
GDP counts only market transactions, so it misses real production that never gets a price tag: household work, childcare by parents, volunteering, and the underground economy (unreported or illegal activity). Two countries with identical living standards can report different GDPs just because more activity happens outside markets in one of them.
GDP also ignores leisure, environmental quality, and income distribution. Output can rise while pollution worsens or while nearly all gains flow to a few households, and GDP alone won't show it.
For cross-country comparisons, divide by population: per-capita GDP is a far better living-standards gauge than total GDP, since a huge economy can still be poor per person. On the exam, the safe claim is that GDP measures output, not well-being.
Key terms for 2.2
Claiming the country with the higher total GDP has the higher standard of living. Living-standard comparisons need per-capita GDP at minimum — and even that ignores distribution, leisure, and nonmarket production.
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