GDP is not a perfect measure of well-being because it:

• A. Measures the number of hours worked in the economy rather than the value of final goods and services produced.
• B. Excludes many nonmarket activities (such as household work) and does not directly account for leisure or environmental quality.
• C. Counts only domestic production by foreign-owned firms and excludes production by domestically owned firms abroad.
• D. Includes only intermediate goods and excludes final goods, so it understates total production.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand what GDP measures. GDP (Gross Domestic Product) calculates the total market value of all final goods and services produced within a country during a specific period. It focuses on market transactions and production within the domestic economy.
2. Step 2: Recognize the limitations of GDP as a measure of well-being. GDP does not capture nonmarket activities such as household work or volunteer services, which contribute to societal welfare but are not traded in markets.
3. Step 3: Consider leisure and environmental quality. GDP does not account for the value of leisure time or the degradation of environmental quality, both of which affect overall well-being but are not reflected in GDP figures.
4. Step 4: Clarify common misconceptions about GDP. GDP includes only final goods and services (not intermediate goods) to avoid double counting, and it measures domestic production regardless of the ownership of firms, so it does not count production by domestically owned firms abroad.
5. Step 5: Summarize why GDP is an imperfect measure of well-being. Because it excludes nonmarket activities, leisure, and environmental factors, GDP provides an incomplete picture of the true economic welfare of a population.