## What is Gross Domestic Product ( GDP )?

Instructor: Alex Tabarrok, George Mason University

Picture the economy as a giant supermarket, with billions of goods and services inside. At the checkout line, you watch as the cashier rings up the price for each

Picture the economy as a giant supermarket, with billions of goods and services inside. At the checkout line, you watch as the cashier rings up the price for each finished good or service sold. What have you just observed?

The cashier is computing a very important number: gross domestic product, or GDP.

GDP is the market value of all finished goods and services, produced within a country in a year.

But, what does "market value" mean? And what defines a "finished good"?

These, and more questions, percolate inside your head. Meanwhile, the cashier starts ringing up the total, and you’re left confused. An array of things pass by you — A bottle of wine. A carton of eggs. A cake from the local bakers. A tractor, of all things. A bunch of ballpens. A bag of flour.

In this video, join us as we show you how to make sense of this important economic indicator. You’ll learn how GDP is computed, and you’ll get answers to some pretty interesting questions along the way.

Questions like, “Why are the eggs in my homemade omelet part of the GDP, but the eggs my baker uses are not? Why does my bottle of French wine contribute to France’s GDP, even if I bought it in the United States?”

Most importantly, you’ll also learn why polar bears aren’t part of the GDP computation, even if they’re incredibly cute.

So, buckle in for a bit—in the following videos we’ll dive into specifics on GDP.

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## Contributed Content (0)

GDP values market transactions. However, if you produce an item late in the year (say December 31st), it's clear that you might not sell it in that calendar year. Still, that item has value and GDP is really a measure of production capability. What I've seen is that firms can reasonably "sell the item to itself" and count it as inventory. Inventory is a part of the the firm's investment (I). Of course some of the finer details of timing is more of an accounting issue.