What are the limitations of using GDP as a measure of economic well-being?

There are several limitations of using GDP as a measure of economic well-being:

1. Excludes non-market activities: GDP only includes goods and services produced in the market economy, excluding non-market activities such as household work, volunteer work, and the informal sector. This can lead to an underestimation of the overall economic well-being.

2. Ignores income distribution: GDP does not take into account the distribution of income among the population. It is possible for a country to have a high GDP but still have significant income inequality, indicating that the economic well-being is not evenly distributed.

3. Neglects environmental costs: GDP does not consider the environmental costs associated with economic activities, such as pollution and depletion of natural resources. This means that GDP growth may come at the expense of long-term sustainability and well-being.

4. Fails to capture quality of life: GDP focuses on the quantity of goods and services produced, but it does not capture the quality of life aspects such as education, healthcare, leisure time, and social well-being. These factors are crucial for overall well-being but are not reflected in GDP figures.

5. Ignores informal economy: GDP calculations often overlook the informal economy, which includes unregistered businesses and illegal activities. This can lead to an inaccurate representation of the overall economic well-being.

6. Does not account for non-monetary factors: GDP does not consider non-monetary factors that contribute to well-being, such as happiness, life satisfaction, and cultural values. These factors are subjective and difficult to quantify, but they play a significant role in determining overall well-being.

Overall, while GDP is a useful measure for assessing economic activity, it should be complemented with other indicators that capture a more comprehensive view of economic well-being.