Question

Suppose that in 2019, geologists discover large reserves of oil under the tundra in Alaska. These new reserves have a market value estimated at \(50 billion at current oil prices. Oil companies spend \)1 billion to hire workers and move and position equipment to begin exploratory pumping during that same year. In the process of loading some of the oil onto tankers at a port, one company accidentally spills some of the oil into a bay and by the end of the year pays $1 billion to other companies to clean it up. The oil spill kills thousands of birds, seals, and other wildlife. What was the combined effect of these events on GDP for this year? (Hint: Which transactions took place in the markets for final goods and services?) In what ways, if any, does the effect on GDP reflect a loss in national welfare?

Short answer

The effect on GDP reflects a loss in national welfare in the following ways- The consolidated impact of these exchanges on GDP this year, the exercises that are taken into GDP etc.

Step-by-step solution

introduction

Examining changes in GDP because of the accompanying exercises. What was the consolidated impact of these exchanges on GDP this year, In what ways does the impact on GDP mirror a misfortune in government assistance for these people

The exercises that are taken into GDP are as follows- Spending of oil organizations to employ laborers and move and position hardware to start exploratory siphoning during the year.

explanation

Spending of oil organizations to clean the unintentionally spilt oil into the cove. The assessed market worth of the new save isn't taken into the GDP computation including loss of public government assistance makes the GDP computations more intricate.

Explanation 

The deficiency of public government assistance isn't taken into GDP estimation, so it meaningfully affects GDP.

The gross domestic product stays away from a few subjective variables on the grounds that its estimation is intricate.