Assume that a tire company sells 4 tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is:
A) $20,000.
B) $20,000 less the automobile company's profit on the car.
C) $20,900.
D) $20,900 less the profits of all three companies on the items that they sold.

Question

Quizplus · Accepted Answer

The correct answer is A) $20,000 because GDP measures the market value of all final goods and services produced within a country in a given period. The car, as sold for $20,000, is the final product that incorporates all the components (tires and compact disc player). The value of intermediate goods (the tires and the CD player) is not counted separately in GDP to avoid double counting.

Assume That a Tire Company Sells 4 Tires to an Automobile