Explain why only final goods are included in GDP.

What will be an ideal response?

Final goods are those that are sold to ultimate or final purchasers as opposed to intermediate goods, which are goods that are used in the production process. Suppose for example that a farmer grows potatoes and then sells them to a fast food chain that uses them to make fries, which are then sold to the public. If both the potatoes and the fries were counted then the same thing would be counted twice; in other words, the potatoes would be counted when they were potatoes and then again when they were in the form of the fries. In order to avoid this double counting only the final goods are included in GDP.

Economics

You might also like to view...

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket

A) change; underestimates B) do not change; overestimates C) change; overestimates D) do not change; underestimates

Economics

Jason and Julie are gardeners. Jason grows corn and Julie grows tomatoes. Every week they trade: Jason gives Julie a bushel of corn in exchange for half a bushel of tomatoes. Is Jason's bushel of corn counted as part of GDP? How would your answer change if Julie bought Jason's corn for $10 at the local farmers' market?

Economics