Question

​Ambrosia, a small country in the Mediterranean​ region, has an​ agriculture-based economy. In recent​ years, a decline in global trade barriers has led to a massive increase in agricultural production in Ambrosia. The government of Ambrosia has claimed that this expansion has increased the​ country's GDP and also improved the overall welfare of its people by increasing employment opportunities.​ However, critics of the government have claimed that this expansion has actually made the people of Ambrosia worse off. Which of the​ following, if​ true, would support the​ critics' argument?

a. The expansion was made possible by an expansion of pesticide use that has damaged the natural environment.b. The prices of inputs used in the production of agricultural products have declinedc. The agricultural market in Ambrosia faces limited competition from the producers in other countries.d. Domestic demand for agricultural products is relatively low in comparison to worldwide demand.e. Increased agricultural production accounted for most of the increase in GDP.

Answer 1

The correct answer is option a.

Step-by-step explanation:

​Ambrosia has an​ agriculture-based economy. A decline in global trade barriers has led to a massive increase in agricultural production in Ambrosia. The government of Ambrosia has claimed that this expansion has increased the​ country's GDP and also improved the overall welfare of its people by increasing employment opportunities.​

But the government's claims have been criticized by stating that economic expansion has actually reduced welfare. This may be true if pesticides were used to increase the production of agricultural goods. use of pesticides will harm the environment which will reduce social welfare in the economy.

But this adverse effect of the use of pesticides is not included in GDP, so an increase in GDP does not imply an increase in overall welfare.