Goods and services that are not sold in markets, such as food produced and consumed at home and some household articles, are generally not included in GDP. How might the absence of these values mislead one when comparing the economic well-being of the United States and India? What other items are not included in GDP and how might their exclusion impact policy?
The exclusion of non-market activities, such as home-produced food and certain household articles, from GDP calculations can potentially mislead when comparing the economic well-being of countries like the United States and India. This is because these non-market activities, though not captured by GDP, still contribute to the overall well-being of individuals and households.
For instance, in India, where a significant portion of food is produced and consumed at home, the exclusion of this value from GDP might make the economy appear smaller than it actually is in terms of people's well-being. On the other hand, the United States, where a smaller proportion of food is produced and consumed at home, might have a higher GDP value, making it seem more economically prosperous.
Additionally, the exclusion of non-market activities can have implications for policy-making. By not accounting for the value of these activities, policymakers might overlook the need for certain measures like supporting small-scale agricultural production or recognizing the importance of unpaid domestic work, which is predominantly carried out by women. This exclusion can lead to policies that may not adequately address the economic and social needs of a country's population.
Apart from non-market activities, there are other items that are also not included in GDP calculations. Some examples include:
1. Underground economy: This refers to economic activities that are not reported or taxed, such as illegal trade and informal employment. Excluding these activities can lead to a distorted representation of the true economic output and tax base of a country.
2. Non-monetized activities: Certain activities, like volunteer work and unpaid caregiving, are not quantified in monetary terms and therefore not accounted for in GDP. However, they still contribute to the well-being of society in various ways.
3. Environmental costs: GDP does not take into account the negative externalities associated with economic activities, such as pollution and resource depletion. This exclusion can give a misleading impression of the sustainability and long-term well-being of an economy.
Overall, the exclusion of non-market activities and other items from GDP calculations can limit the understanding of a country's economic well-being and may result in policy decisions that do not fully address the diverse range of economic and social needs.