Question

Suppose a consumer buys a frozen cheese pizza at the grocery store at a price of $10. The frozen pizza company sold the pizza to the store for $5. The frozen pizza company purchased the pizza dough and tomato sauce from a food processing company at a price of $2 and bought the cheese from a dairy at a price of $1. How much has GDP increased

Answer 1

Answer:

Only the market value of new finished goods are included in the GDP, so $10 would be added.

Explanation:

Imagine a company that produces furniture. If we would include the wood, the nails, the wood paint, etc., were included in the calculation plus the furniture itself, you would be double-counting the cost of the manufactured furniture. If you consider waste materials, then you would be adding even more costs. That is why you only consider finished goods.