This is a two part question. 1. Define GDP. How would the value of output produc
ID: 1134015 • Letter: T
Question
This is a two part question.1. Define GDP. How would the value of output produced at an American-owned factory in the US and a foreign-owned factory in the US be treated in GDP accounting?
2. Explain what is meant by a competitive market. This is a two part question.
1. Define GDP. How would the value of output produced at an American-owned factory in the US and a foreign-owned factory in the US be treated in GDP accounting?
2. Explain what is meant by a competitive market.
1. Define GDP. How would the value of output produced at an American-owned factory in the US and a foreign-owned factory in the US be treated in GDP accounting?
2. Explain what is meant by a competitive market.
Explanation / Answer
Answer)
1) GDP or Gross Domestic Product can be defined as a financial estimate of the market value of sum total of all the goods and services produced in an economy during a year.
Both the the value of output produced at an American-owned factory in US and a foreign-owned factory in the US would be considered/included while accounting for GDP.
The rationale for this is that "gross domestic product includes only those goods and services which are produced within the boundaries of a country" no matter whether it is produced by the residents of the home country or foreigners. For example, A French firm producing motorbikes in Germany will be counted while calculating Germany's GDP.
2) Competitive market can simply be defined as one where there are "large numbers of both buyers and sellers" such that the a single buyer or seller is not in a position to influence either the price or the output either by leaving or by entering the market. The price in case of a competitive market is set by the industry.
General features of a competitive market:-
1) "Free entry and exit"
2) "Perfect knowledge" about the market with both buyers and sellers.
3) No Transportation Cost
4) Homogenous Product, that is, every producer produces same product.
5) Easy movability of factors.
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