... better indication of relative living standards is deduced. Secondly, real GDP does not include externalities. Externalities are third party costs which do affect living standards of the population, such as pollution and congestion. These pose costs on third parties and represent real opportunity costs for them, reducing their effective disposable income, and hence living standards. Pollution and congestion and other negative externalities also have negative effects on health. The time spent ill, is an opportunity cost to leisure, and furthermore, less days working reduces output. Furthermore, if real GDP per head is high, this may not be due to high wages, but due to long working hours. Long working hours result in less leisure time and stress, which reduces living standards. Another reason why the real GDP may not be a good measure of standard of life is that the values that are shown up do not include quality of the goods. There ...

See this essay or coursework document in full right now