Changes In Which Of The Following Factors Do Not Shift The Demandã¢â‚¬â€¹ Curve?
Q.one
Define an indifference curve. .
Solution
An indifference curve is a curve that depicts various combinations of two appurtenances that provides a consumer with the same level of satisfaction.
Q.2
When is a house called "cost-taker"?
Solution
A firm is said to exist a toll taker when it has no command over the existing market cost and accepts the price as determined by the "invisible easily of market", i.due east. by demand for and supply of the commodities.
Q.iii
What is the behaviour of Full Variable Cost, as output increases?
Solution
Initially, as more and more units of output are produced, and so Total Variable Cost increases at a diminishing rate and thereafter, a certain level of output, it increases but at an increasing rate.
Q.4
When is the demand for a good said to be perfectly inelastic?
Solution
When the quantity demanded of a good is independent of its price then the demand of that good is said to be perfectly inelastic. In other words, when the quantity demanded does not evidence whatever responsiveness to the changes in the price, we say that the elasticity of need is perfectly inelastic i.e. |ed| = 0.
Q.5
In which market class demand bend of a business firm is perfectly rubberband?
Solution
Under perfect competition, the need bend of the firm is perfectly elastic. The demand bend is horizontal direct line parallel to the output centrality.
Q.6
Why is a production possibilities curve concave? Explain.
Solution
Production Possibility Curve (PPC) is concave to the origin considering of the increasing opportunity cost. As we move downward forth the PPC, to produce each additional unit of one good, more and more units of other good needs to exist sacrificed. That is, as we motion down along thePPC, the opportunity cost increases. This is called every bit thelaw of increasing opportunity cost.
In the above figure,AErepresents thePPCfor capital appurtenances and consumer goods. Suppose the initial production point isB, where 1 unit of capital skillful and 48 units of consumer goods are produced. To produce one additional unit of measurement of capital letter good, iv units of consumer expert must be sacrificed (point C). Thus, at pointCthe opportunity cost of one additional majuscule good is 4 units of consumer goods. On the other hand, at pointD,the opportunity cost of producing ane boosted unit of capital letter good is 9 units of consumer goods. Thus, every bit we move downwards thePPCform pointCto pointD, the opportunity price increases. This confirms the concave shape ofPPC.
Q.7
A consumer consumes merely ii goods 10 and Y and is in equilibrium. Price of 10 falls. Explicate the reaction of the consumer through the Utility Assay.
Solution
In case of two commodities, the consumer'due south equilibrium is attained at that point, where; the utility derived from each additional unit of the rupee spent on each of the commodities is equal. That is, Marginal Utility of a Rupee spent on the commodityX
If toll of the commodityXfalls, then the value of the fraction
In such a situation, the consumer would increase his consumption of commodityX. He volition continue to increase the consumption of commodityXuntil the equality betwixt the marginal utilities of each of the bolt get equal to the marginal utility of money. At this situation, the equilibrium is restored. That is,.
Q.8
Why tin a house not earn abnormal profits under perfect competition in the long run? Explain.
OR
Why is the need curve of a firm under monopolistic contest more than elastic than under monopoly? Explain.
Solution
Nether perfect competition, no firm can earn abnormal profits in the long run. This is because if any firm in the long run earns aberrant profits (that is price > minimum of average price curve), then new firms are attracted into the marketplace. Due to the new entrants, the production of output increases, which then increases the supply of the output. This puts pressure on the price and price continues to fall, until it reaches the minimum of boilerplate cost curve. At the minimum of boilerplate cost curve, all the abnormal profits are wiped-out and no firm earns abnormal profit. Thus, in long run, under perfect competition, no firm tin earn abnormal profits, rather earns naught economic profit.
OR
The demand bend under monopolistic competition is more than elastic than under monopoly. The reason behind this can exist attributed to the fact that the nature of the appurtenances available in both the markets is different. That is, under monopolistic market, there is a broad range of close substitutes bachelor for the proficient whereas, in monopoly market place, the monopolist is the single seller and there are no close substitutes available for its product. Due to this, the demand curve under monopoly is less responsiveness to the changes in prices of the practiced. In contrast to this, in monopolistic market, due to the availability of a broad range of substitutes, there is a college responsiveness of demand to the changes in prices. Hence, we can infer that the need curve under monopolistic competition is more elastic than under monopoly.
Q.9
Explicate the problem of "what to produce".
OR
Explainany twomain features of a centrally planned economy.
Solution
The problem of ' what to produce ' is ane of the central problems of an economic system. It is concerned with deciding what and how much of dissimilar goods and services are to be produced in an economic system so that the deficient and limited resources are allocated in the best possible manner.
For example, suppose an economy can produce simply 2 types of goods, food grains and wear. Now, the economy must decide how much and which of the food grains should be produced and how much and which of the article of clothing should be produced.
OR
The ii major features of a centrally planned economy are mentioned beneath:
Major Role of the Country:
Under a centrally planned economy, all the major production activities are planned, organised and controlled by the government. The state controls and governs all the factors of production such as land, labour, majuscule and entrepreneur.
Welfare Motive:
The sole motive of all the major economical activities is to render services and to enhance the welfare of the guild. Too, the country controls the distribution of goods and services (i.east. the last production) amidst different segments of the population .
Q.x
Explain how the demand for a good is afflicted by the prices of its related goods. Give examples.
Solution
Quantity demanded of a good depends on the price of other goods (i.e. related goods). Any 2 goods are considered to be related to each other, when the demand for one skillful changes in response to the change in the price of the other good. The related goods can be classified into following two categories.
Substitute Goods:
These are the goods that tin can be consumed in place of each other. In other words, they tin exist substituted for each other. In case of substitute goods, if the toll of one skilful increase, then the consumer shifts his demand to the other (substitute) good i.e. rise in the toll of one practiced results in a rise in the demand of the other good and vice-versa.For example, tea and coffee are substitute goods. If, the price of tea rises (falls), the demand for coffee rises (falls).
Complementary goods:
These are the goods that are consumed together. It is the joint consumption of these goods that satisfies wants of the consumer. In example of complementary appurtenances, if the price of ane skilful increases and so a consumer reduces his demand for the complementary good besides. That is, a rise in the cost of one skillful results in a fall in the demand of the other skilful and vice-versa. For example, sugar and tea are gratis goods. If, the price of tea increases (decreases), the demand for sugar decreases (increases).
Q.xi
What does the Law of Variable Proportions bear witness? State the behaviour of marginal product according to this law.
OR
Explain how changes in prices of inputs influence the supply of a product.
Solution
Constabulary of Variable Proportions
According to the law of variable proportions, if more and more units of variable factor (labour) are combined with the same quantity of fixed factor (capital) and then initially the total production volition increase. Merely gradually, later on a point, the full production will get smaller and smaller.
Assumptions of Law of Variable Proportions
- Technology level remains constant
- The units of variable factors are homogeneous.
- One of the inputs must be fixed.
- No change in the input prices- wages and interests.
Behaviour ofMP
| Stages | Phase'due south Name | MP | Range |
| I | Increasing Returns to a gene | MPincreases till indicate U | From 0 to pointU |
| II | Diminishing Returns to a factor | MPfalls and touchesx-axis | FromUonwards |
| III | Negative Returns to a gene | MPbecomes negative | Beyondx-axis |
Initially, with increment in the output as total product increases at an increasing rate, the marginal product also increases. At the bespeak of inflexion whereTPstops increasing at the increasing rate,MPreaches its maximum point. Beyond the point of inflexion with further increase in output asTPincreases at a diminishing charge per unit,MPstarts falling. At the point whereTPattains maximum,MPbecomes zero. With further rise in the output asTPfalls,MPbecomes negative.
OR
The changes in the price of inputs that are used in the product bear on the quantity supplied in the market place. There exists an changed relationship between the input prices and the quantity supplied of the commodity. An increase in the input prices raises the cost of production, thus making it less profitable for the producers to produce the commodity. Equally a outcome, the quantity supplied of the article falls.
In the diagram, as the price of inputs used rises, the quantity supplied falls and the supply curve shifts leftwards fromS1SitoStwoSouthward2 ..
On the other hand, a fall in the price of inputs used in the production implies a reduction in the toll of production. As a issue, the quantity supplied in the market increases. In the diagram, as the cost of inputs used falls, the quantity supplied rises and the supply curve shifts rightwards fromS1S1toS2S2 ..
Q.12
Explain iii backdrop of indifference curves.
OR
Explain the conditions of consumer'due south equilibrium under indifference curve arroyo.
Solution
The following are the three properties of Indifference Curve
i.Gradient of IC: The Slope of anICis given by theMarginal Charge per unit of Commutation (MRS). Marginal rate of substitution refers to the rate at which a consumer is willing to substitute one good for each additional unit of the other good.
At point A:
i.due east. MRS shows the rate at which the consumer is willing to cede goodYfor an additional unit of goodX.
ii.Shape of Indifference Curve: As we motion down forth the Indifference curve to the right, the slope ofIC(MRS) decreases. This is considering as the consumer consumes more than and more of one skillful, the marginal utility of the good falls. On the other mitt, the marginal utility of the adept which is sacrificed rises. In other words, the consumer is willing to sacrifice less and less for each additional unit of the other good consumed. Thus, as nosotros move down theIC, MRS diminishes. This suggests theconvexshape of indifference curve.
In the above figure,ICis the Indifference Curve.
At signal A,
At point B,
MRSatB<MRSatA,soMRShas fallen
iii.Ii indifference curves never cantankerous each other:.
Suppose, there are two indifference curvesIConeandICiithat intersect each other at pointB.
Nosotros can observe that pointBand pointPlie on the same indifference bend,ICone .This implies that the consumer must be indifferent between the two consumption bundlesBandP. Similarly, pointBand pointQlie on the aforementioned indifference curve,IC2 .This implies that the consumer must also be indifferent between the 2 consumption bundlesBandQ. i.e.
B(X,Y)-¼P(X,Y) andB(Ten,Y)-¼Q(X,Y)
By the axiom of transitivity, the higher up analysis implies that a consumer must exist indifferent betwixt bundlePand bundleQi.eastward.
P(10,Y)-¼Q(X,Y)
Notwithstanding, this is not possible because bundlePand bundleQlie on differentIC. Hence, the two consumption bundles cannot provide the consumer the same level of satisfaction. Thus, information technology can be concluded that twoICcannot cross each other.
OR
According to the Indifference Curve Approach, a consumer attainsequilibriumat the pointwhere the budget line is tangent to the indifference curve and IC should be convex to the origin at this signal of tangency. This optimum point is characterised by the following equality:.
That is,
Absolute value of the slope of theIC= Absolute value of the slope of the upkeep line
Graphically, the equilibrium can exist depicted equally follows.
In the above effigy, pointEdepicts consumer'south equilibrium. At this point, the upkeep line is tangent to the indifference curve IC2. The optimum bundle is denoted by (x1*,x2*). This point is the optimum or the best possible consumption bundle, where the consumer is maximising his satisfaction.
All other points lying on the upkeep line (such every bit pointBand pointC) are inferior to (x1*x2*) as they lie on a lowerIC (i.e.IC1). Thus, the consumer volition rearrange his consumption and will attempt to reach the equilibrium indicate, where the marginal charge per unit of commutation is equal to the toll ratio.
Let suppose that instead of point Eastward, the consumer is at bespeak B. At this betoken, MRS is greater than the price ratio
On the other hand, for all points such as indicate C, MRS is bottom than the price ratio
Thus, we can conclude that if the consumer is consuming any bundle other than the optimum one, then he would rearrange his consumption package in such a way that the equality between the MRS and the price ratio is established and he attains the state of equilibrium.
Q.13
Land whether the following statements are true or false. Give reasons for your answer.
(a) When full revenue is abiding boilerplate revenue will too be constant.
(b) Average variable cost tin fall fifty-fifty when marginal cost is ascent.
(c) When marginal product falls, average product will also fall.
Solution
(a)False,when total acquirement is constant average revenue will not be constant. This is because as average acquirement is total revenue divided by units of output thus, it will fall with continuously rising units of output sold.
(b)True,average variable cost can autumn even when marginal price is ascent. This is considering marginal price falls faster than average variable cost, attains its minimum and outset rise. When marginal cost is rising, average variable cost is still falling.
(c)Imitation,when marginal product falls, average production is still rising. This is because marginal product rises faster than boilerplate product, attains its maximum and starts falling. When marginal product is falling, boilerplate product is still rising.
Q.14
Market place for a good is in equilibrium. There is an "increase" in demand for this practiced. Explicate the chain of effects of this change. Use diagram.
Solution
Marketplace equilibrium is a country or a position where market demand equals market supply. Now, if the market demand increases, so it results in a modify in the equilibrium.
SupposeD1D1andS1Soneare the initial marketplace demand curve and the initial market supply curve, respectively. The initial equilibrium is established at pointEi, where the market demand curve and the marketplace supply bend intersects each other. Accordingly, the equilibrium price isOP1and the equilibrium quantity demanded isOqi.
At present, if in that location is an increment in the market demand, the market demand bend shifts parallely rightwards toDiiD2fromDiDi, while the market supply curve remains unchanged atS1Due southane .This implies that at the initial priceOP1,there exist excess demand equivalent to (Oq'ane-'Oq1) units. This excess demand will increase competition among the buyers and they will now be ready to pay a higher price to larn more units of the expert. This will further raise the market price. The price will continue to rise till it reachesOPii . The new equilibrium is established at pointE2, where the new need curveDtwoD2intersects the supply curveS1S1.
At the new equilibrium E2'
Equilibrium output has increased from Oq1to Oqtwo
Equilibrium price has increased from OP1to OP2
Hence, an increase in demand with supply remaining constant, results in rising in the equilibrium price as well equally the equilibrium quantity.
Increment in Demandâ‡'Excess Demand at the Existing Priceâ‡'Competition Amongst the Buyersâ‡'Ascension in the Toll Levelâ‡'New Equilibriumâ‡'Rise in both Quantity Demanded too as Price.
Q.15
A) Describe total Variable Price, Total Cost, and Total Fixed Cost curves in a unmarried diagram.
B ) A producer starts a business concern past investing his own savings and hiring the labour. Identify implicit and explicit costs from this information. Explain.
Solution
A )
B )
Implicit cost (or imputed price) refers to toll of the factors that a producer neither hires nor purchases. These costs are not really paid by the producers but are included in the price of production. It is a divergence between the economic turn a profit and accounting profit. On the other hand, explicit costs are those costs that are borne directly by the firm and are paid to the factors of production.
Implicit Cost:The involvement that could have been earned past the producer by keeping the savings in his savings account is referred to as implicit toll.
Explicit Cost:The cost incurred on making payment to the labour in the form of wages is termed every bit explicit cost.
Q.16
Requite two examples of intermediate goods.
Solution
Two examples of intermediate goods are log of wood purchased by a article of furniture manufacture and cotton fiber purchased by a cloth industry.
Q.17
Give the meaning of ex-ante savings.
Solution
Ex-ante savings refers to the planned or desired level of savings in the economy.
Q.18
Define cash reserve ratio.
Solution
Cash Reserve Ratio (CRR) refers to the minimum proportion of the total deposits which the commercial banks are required to keep with the central bank in the class of reserves.
Q.xix
Define a 'Direct revenue enhancement'.
Solution
Direct Taxation refers to the tax that is directly borne by the person on whom information technology is imposed. The burden of a direct revenue enhancement cannot be shifted on to other person. For example, income revenue enhancement, wealth tax, etc. are direct taxes as these taxes are paid and borne by the same person on whom they are levied.
Q.xx
What is acquirement deficit?
Solution
Revenue Arrears refers to theexcess of revenue expenditure over revenue receipts. Algebraically,.
Revenue Arrears = Revenue Expenditure-Revenue Receipts
Q.21
Explain how distribution of gdp is its limitation every bit a measure of economic welfare.
OR
Explain the ground of classifying goods into intermediate and final goods. Give suitable examples.
Solution
GDPrefers to the market value of all the final goods and services producedwithin the domestic territoryduring an accounting year.GDPas an index of welfare depends on the distribution of income in the economy. Information technology is possible that even with the rise in the realGDP, the welfare of the people might not increase. It is possible that the increase in theGDPmay exist a issue of the increase in the income of only a few individuals while, the bulk of people remain deprived of the benefits of the ascent in theGDP. In such a situation, a rise in theGDPdoes not enhance the economical welfare. In other words, a rise in national income may lead to false interpretation of the social welfare. Thus, it can be said that distribution ofGDPis it's limitation as a measure of economic welfare.
OR
Goods are classified as intermediate appurtenances and concluding appurtenances on the basis of their utilize.
Terminal goods: Terminal goods are the appurtenances that are meant for terminal apply by the consumers. Such goods exercise not pass through whatever further stages of production, that is, no further transformation is required for these appurtenances to brand them consumable. Such goods have already crossed the boundary line of the production and are more often than not not meant for resale by the purchaser. For example, readymade clothes at showroom are final goods.
Intermediate goods: Intermediate goods are the goods that are not prepare for final consumption by the consumers. These goods are used merely as inputs/raw materials in the production process. In other words, intermediate goods undergo further transformation. Such appurtenances have still not crossed the purlieus line of production and farther value addition to them is required before they are ready to be used by the concluding user. For instance, a log of forest purchased past a furniture industry is an intermediate expert. This log of forest has to exist processed as chair or table earlier it can be used past the concluding consumer.
Q.22
Explain the human relationship between investment multiplier and marginal propensity to consume.
Solution
Investment multiplier implies that any change in the investment leads to a corresponding modify in the income and output by multiple times. That is, in other words, the alter in the income and output is more than (or multiple times of) the change in investment.
Investment Multiplier shares a direct positive relationship with marginal propensity to swallow. That is, college the value ofMPC, higher volition be the value of investment multiplier and vive-versa.
Algebraically, the relationship is expressed as follows.
Suppose, the value ofMPCis 0.five then,.
Now, if the value ofMPCrises to 0.8 then,.
Thus, as the value ofMPCrises from 0.5 to 0.eight, the value of investment multiplier rises from 2 to 5. This confirms the direct positive relation betweenMPCand investment multiplier.
Q.23
Distinguish betwixt revenue receipts and upper-case letter receipts in a authorities budget. Give example in each case.
OR
Explain the role of government budget in bringing economic stability
Solution
| Basis of Difference | Capital Receipts | Acquirement Receipts |
| Meaning | These refer to those government receipts that crusade a reduction in the authorities assets and also create a liability for the regime. | These refer to those government receipts that neither create whatever liability nor they create any reduction in the government assets. |
| Reduction in Assets | They cause a reduction in the avails of the government. | They exercise not cause any reduction in the assets of the government. |
| Creation of Liability | They create liability for the government. | They do non create any liability for the regime. |
| Example | Recovery of loans is a capital receipt | Revenue enhancement receipts are revenue receipts |
OR
Economic stability is one of the important objectives of the regime budgetary policy. Regime aims at insulating the economy from major economic fluctuations (such every bit inflation, unemployment, etc.) and the concern cycles such as boom, recession, depression and recovery. The major business organization of government is to achieve college economic growth rates while maintaining cost and employment stability. This land of economic growth with stability ensures a smooth and efficient functioning of an economy. It is due to this reason that the stability of the economy is kept equally one of the objective of the government upkeep.
Q.24
Summate 'Sales' from the following data:
| (Rsin lakhs) | ||||||
| ( (i) | Subsidies | 200 | ||||
| (two) | Opening stock | 100 | ||||
| (iii) | Closing stock | 600 | ||||
| (4) | Intermediate consumption | 3,000 | ||||
| (v) | Consumption of stock-still capital letter | 700 | ||||
| (half-dozen) | Profit | 750 | ||||
| (vii) | Net value added at cistron price | 2,000 | ||||
Solution
Q.25
Country whether the following statements are true or false. Give reasons for your answer:.
(a)When marginal propensity to swallow is greater than marginal propensity to salvage, the value of investment multiplier will be greater than v.
(b) The value of marginal propensity to save can never be negative. .
Solution
(a)False,when marginal propensity to consume is greater than marginal propensity to salvage, the value of investment multiplier volition not be greater than 5.
For example ifMPCis 0.half dozen andMPSis 0.4, then investment multiplier volition be.
(b) True,the value of Marginal Propensity to Salvage tin can never be negative. This is because fifty-fifty if the unabridged alter in income is spent on consumption (MPC=1), and then alsoMPSwill be nothing rather than negative.
Q.26
Giving reasons classify the following into intermediate products and final products:
(i) Furniture purchased by a school.
(ii) Chalks, dusters, etc, purchased by a school.
Solution
(i) Furniture purchased by the school is afinal productas information technology is used by the school for final consumption purposes and does not undergo any further processing.
(ii) Chalks, dusters, etc, are afinal productas they are used for terminal consumption purpose of the school.
Q.27
Find out (i) Gross National Product at Marketplace Price and (ii) Internet Current Transfers from Abroad:
| S. No. | Items | (Rs Crore) |
| (i) | Private final consumption expenditure | g |
| (two) | Depreciation | 100 |
| (iii) | Internet national disposable income | 1500 |
| (iv) | Closing stock | xx |
| (v) | Authorities final consumption expenditure | 300 |
| (vi) | Net Indirect tax | l |
| (7) | Opening stock | 20 |
| (8) | Net domestic fixed capital germination | 110 |
| (ix) | Net exports | 15 |
| (ten) | Net factor income to abroad | (-) 10 |
Solution
(i)
GNPMP= Private Final Consumption Expenditure + Authorities Terminal Consumption Expenditure + Net Exports + Cyberspace Domestic Fixed Capital Formation + Depreciation -Internet Factor Income to Away
= 1000 + 300 + 15 + 110 + 100 -(-) 10
= Rs 1535 crore
(2)
Cyberspace Current Transfers from Abroad = National Disposable Income -National Income -Internet Indirect Taxes
National Income (NNPFC) =GNPMP-Depreciation -Net Indirect Taxes
= 1535 -100 -50
= Rs 1385 crore
Thus, Internet Electric current Transfers from Abroad = 1500 -1385 -50
= Rs 65 crore
Q.28
Calculate “Gross National Production at Market Priceâ€Â from the following data:
| S.No. | Particulars | (Rsin crores) | |
| (i) | Compensation of employees | 2,000 | |
| (ii) | Involvement | 500 | |
| (iii) | Rent | 700 | |
| (iv) | Profits | 800 | |
| (5) | Employer'due south contribution to social security schemes | 200 | |
| (vi) | Dividends | 300 | |
| (vii) | Consumption of fixed majuscule | 100 | |
| (eight) | Net indirect taxes | 250 | |
| (9) | Net exports | 70 | |
| (x) | Cyberspace factor income to away | 150 | |
| (xi) | Mixed income of self-employed | i,500 | |
OR
Calculate “Gross National Dispensable Incomeâ€Â from the following data:
| Southward.No. | Particulars | (Rsin crores) | |
| (i) | Net domestic product at gene cost | 3,000 | |
| (ii) | Indirect taxes | 300 | |
| (three) | Net current transfers from rest of the earth | 250 | |
| (iv) | Current transfers from the government | 100 | |
| (v) | Net factor income to abroad | 150 | |
| (vi) | Consumption of fixed capital | 200 | |
| (vii) | Subsidies | 100 | |
Solution
Q.29
In an economy 75 per cent of the increase in income is spent on consumption. Investment is increased by Rs one,000 crore. Calculate:.
(a) Total increase in income
(b) Total increase in consumption expenditure.
Solution
Q.30
A) Country the components of majuscule account of balance of payments.
B) Explain how "distribution of gross domestic product" is a limitation in taking gross domestic product as an alphabetize of welfare.
Solution
A) Capital Account of Balance of payment (BOP) refers to that business relationship ofBOP, which records all the transactions that cause a change in the condition of avails and liabilities of the authorities or whatever of the residents of a land.
The following are the components of capital letter accountofBOP.
Foreign Direct Investment (FDI) and Portfolio Investment:
Foreign Directly Investment refers to the investment in the assets of a foreign country that allows control over the nugget. On the contrary, Portfolio Investment refers to the investment in the assets of a strange land without any control over that nugget.Both FDI and portfolio are non-debt creating capital letter transactions.They crusade an arrival of foreign commutation into the land. Thus, they are recorded equally positive items in the Majuscule Account ofBOP.
Loans and Borrowings:
A land takes loans and borrowings from the foreign countries and from the international monetary transactions. Loans and borrowings aredebt-creating capital transactions. Theyresult in inflow of foreign exchange into the country. Hence, they are recorded every bit positive items in the Capital Account ofBOP.
Banking Capital Transactions:
Banking capital transactionsrefer to the transactions of external financial assets and liabilities of the commercial banks and cooperative banks that operate as authorised dealers in the foreign exchange market place.
B) GDPrefers to the market value of all the final goods and services producedwithin the domestic territoryduring an accounting year.GDPas an index of welfare depends on the distribution of income in the economy. It is possible that even with the rise in the realGDP, the welfare of the people might not increment. This is because an increment in theGDPmay be a issue of the increase in the income of only a few individuals while, the majority of people remain deprived of the benefits of the rising in theGDP. In such a situation, a rise in theGDPdoes not enhance the economic welfare. In other words, a rise in national income may lead to simulated interpretation of the social welfare. Thus, it tin exist said that distribution ofGDPis a limitation as a measure out of economic welfare.
Source: http://www.quizsolver.com/blog/view/details/CBSE/CBSE-Sample-Paper-7-For-Economics/438/
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