Question

The inhabitants of Pandora value their environment​ (e.g., forests,​ springs, breathable​ air, etc.) twice as much as the inhabitants of Utopia. Suppose that the value added for all goods and services increases by the same amount in both​ countries, but has a negative effect on the environment​ (e.g., pollution). According to the production approach to the measurement of​ GDP, is this good or​ bad?

A. There is no effect on the value of​ GDP, so this is neither good nor bad.
B. This is good because the value of GDP increases in both countries due to the increase in value added.
C. This is bad because the pollution reduces the value of GDP.
D. The answer cannot be determined from the information given.

Answer 1

B. This is good because the value of GDP increases in both countries due to the increase in value added.

Step-by-step explanation:

The production approach measures the GDP by calculating the difference between the selling price of a good or service, minus the cost of all the goods and services used to produce that good. This approach calculates the value added to the inputs needed to produce certain output.

Even though both countries will benefit from the increase in their GDP, Utopia should benefit more.