Economics Questionss?

Question

GDP does not include the value of used goods that are resold. Why would including such transactions make GDP a less informative measure of economic well being?

Answer 1

What is measured in GDP is the cost of production. Nothing is added to production costs if the item is resold. That item has already been produced and its production costs accounted for.

Answer 2

For one thing it would be impossible to accurately guess what is happening in second hand markets. For another it is not as much an indication of what is really going on in the market (supply and demand). Used products have already given value to the original owner and so the value for which they are sold does not represent the information like new products..

If i buy a toothbrush for 5 bucks then use it for a year and sell it for 1 dollar. I am theoretically operating at a loss. But who wouldn't sell their used toothbrushes at a loss. I got what i wanted out of it. Making its value negligible to me. Any amount you get is just above and beyond throwing it out. If nobody wants to buy my toothbrush it does not mean the economy is in a bad state. It means people are either buying new brushes or doing without. GDP is not meant to be a country wide inventory of all purchases. It is meant to describe the economy.

However if you examine the economics behind a company taking that 5 dollar brush when they reduce their price to 4 dollars that represents more of the supply and demand side of the strength of weakness of that economy.

I know this is a weird example but it gets at the main point.

Answer 3

It's bad

Answer 4

they have already been accounted for the first time they were sold, this would be recounting something that has been counted already meaning an untrue economy.

Answer 5

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