Case Scenario: It has been reported that there has been a significant increase in haze and dust storms in the major cities of Taiwan. The haze and dust storms were originally caused by air pollution in a cross-strait neighboring country of Taiwan and then blown into Taiwan by prevailing winds. According to the Environmental Protection Agency (EPA) of Taiwan, this cross-strait air pollution generally deteriorates the air quality in Taiwan significantly, especially during winter, which causes increasing numbers of respiratory illness, heart attacks and lung cancer. Suppose in the next two years the production and demand of high-tech air purifiers and anti-pollution masks increase constantly in Taiwan. Further, suppose that the number of visits to the doctors by Taiwanese people will increase significantly in the next two years due to chest infections and other respiratory illness.
Discuss both of the following two questions:
a. Is there likely to be an increase or decrease in measured GDP in Taiwan in the next two years, while assuming most other economic factors, such as labour participation rate, government spending and inflation rate, remain constant? You must explain specifically why the measured GDP is likely to increase or decrease or remain the same.
b. One elected official in Taiwan argued that government must do everything possible to increase the growth of this nation's GDP because an increase of real GDP per capita will increase national income and thus certainly improve well-being of Taiwanese people. Discuss whether you agree with this elected official's statement. You should elaborate your arguments by using evidences from this case or other real-world examples.