Limitations of GDP
Introduced| English |
|---|
| nonmarket transactions/ˌnɒnˈmɑːkɪt trænˈsækʃnz/ |
| household production/ˈhaʊshəʊld prəˈdʌkʃn/ |
| underground economy/ˌʌndəˈɡraʊnd ɪˈkɒnəmi/ |
| externalities/ekˈstɜːnælɪtiz/ |
| pollution/pəˈluːʃn/ |
| resource depletion/rɪˈzɔːs dɪˈpliːʃn/ |
| leisure/ˈleʒə/ |
| distribution of income/ˌdɪstrɪˈbjuːʃn ɒv ˈɪŋkʌm/ |
| GDP per capita/ˌdʒiː diː ˈpiː pɜː ˈkæpɪtə/ |
| population/ˌpɒpjʊˈleɪʃn/ |
One number can't say everything
- GDP is powerful, but it is not a perfect scorecard for a nation.
- It misses real work that has no price tag.
- It ignores the damage done while producing.
- Knowing its limits keeps you from over-trusting a single figure.
What GDP understates
- Nonmarket transactions 非市场交易 — useful work with no payment, like household production 家庭生产 (cooking, childcare) and volunteering.
- Hire a cook and GDP rises; cook the same meal yourself and it does not.
- The underground economy 地下经济 — hidden, unreported work that GDP simply cannot see.
If you cook your own dinner instead of paying a restaurant, GDP:
Unpaid household production has no market price, so GDP does not record it.
Hidden, unreported work that dodges taxes is part of the ______ economy.
Because it is deliberately hidden, GDP records less output than really happened.
What GDP ignores
- Externalities 外部性 — a factory's output raises GDP, but the pollution 污染 it creates is not subtracted.
- Resource depletion 资源枯竭 — cutting a forest counts as output, but the lost forest is not a recorded loss.
- GDP also ignores leisure 闲暇 and says nothing about the distribution of income 收入分配 — a high GDP can hide great inequality.
Does GDP capture it?
GDP misses unpaid and hidden work, and ignores pollution, resource loss, leisure, and inequality — so it is not a full measure of well-being.
GDP subtracts the value of pollution created while producing goods.
GDP counts the factory's output but ignores the pollution — an externality it does not subtract.
Select all that GDP fails to capture.
GDP misses unpaid work, side effects and inequality; a car sale is a market transaction it does count.
GDP per capita
- To compare living standards, economists use GDP per capita 人均国内生产总值 — total GDP divided by population 人口.
- Worked idea. Country A: GDP 2,000b, 200m people → per capita 10,000. Country B: GDP 500b, 25m people → per capita 20,000.
- A is far bigger in total, yet the average person in B is twice as well off.
- Total GDP alone would have misled us.
A country has GDP of 2,000 billion and 200 million people. What is its GDP per capita, in dollars? (use billions ÷ millions × 1000)
Per capita = 2,000,000 million ÷ 200 million = 10,000 per person.
Why is GDP per capita better than total GDP for comparing living standards?
A huge country can have a large total GDP but a low average standard of living.
GDP understates output (it skips nonmarket transactions and the underground economy) and ignores costs like externalities and resource depletion, plus leisure and the distribution of income. For living standards, use GDP per capita — total GDP divided by population.