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14 - Nothing is produced hence no influence on GDP o...

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Econ 2/14: Midterm on February 28 th Equilibrium price: - Price that is ultimately determined to not create an excess demand nor and excess supply - If consumers have some expectations about the supply, they will have an impact on the supply side GDP: - Method for determining GDP o Find unit cost of a particular item (cost of materials/output) For cotton shirt: Selling Price Net value added cost of 2lbs cotton $10 $10 factory $20 $10 whole-saler $30 $10 retailer $40 $10 - US government in determining GDP: takes into account final price o For a particular year, we count total production (not necessarily reflective of the price a good sells for, but rather the “sticker” price) - 5 kinds of transactions that are excluded from the GDP o Public transfer payments (e.g. welfare, Medicare, unemployment, etc.)
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Unformatted text preview: Nothing is produced hence no influence on GDP o Private transfer payments (e.g. monetary gifts from one individual to another) Again, nothing is produced o Securities transactions (e.g. stocks) Wealth of nation has not increased, it’s simply money changing hands • The fee of broker is incorporated though, b/c he/she provides a service • IPO (initial public offering) is counted in GDP b/c companies use the money for production o Secondhand sales (e.g. used cars, homes, etc.) If you make improvements on the home, then that does count for GDP b/c something was produced value went up o Non-market production Production that is not filtered through market has no value for calculating GDP (e.g. cleaning, cooking)...
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