(a) As per The Economic Times report, dated April 11, 2023 "Electric Vehicle sales cross 10 Lakh mark in financial year 2022-23." Analyse the likely impacts of this news on Gross Domestic Product (GDP) and Welfare. (b) Discuss briefly, the circular flow of income in a two sector economy model.

Question

Accepted Answer

Impact of Electric Vehicle (EV) sales crossing 10 lakh mark:

(i) Impact on GDP:
- Increases GDP through production of EVs (part of manufacturing sector output)
- Increases GDCF as EV purchase by firms is part of gross business fixed investment
- May reduce imports of petroleum products, improving Net Exports
- Creates new employment in EV manufacturing and charging infrastructure

(ii) Impact on welfare:
- Positive externality: Reduced air pollution improves public health
- Lower running costs benefit consumers
- Reduced dependence on imported oil improves energy security
- However, transition may cause job losses in traditional auto sector (negative externality)

GDP may increase but welfare improvement depends on whether positive externalities outweigh negative ones.