Water is extremely important. Without it, life could not exist. While they are also important in the modern world, motor vehicles are not essential to life. Why is it that water sales are less...

Water is extremely important. Without it, life could not exist. While they are also important in the modern world, motor vehicles are not essential to life. Why is it that water sales are less important in GDP than are motor vehicle sales?

Asked on by zahiromar

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Water sales are not very important to GDP because GDP is a measure of the market value of goods and services, not a measure of how important they are.  Water does not cost very much and so it is not as big a part of GDP as motor vehicles are (in countries where motor vehicles are produced).

However, this does force us to ask why water is not as expensive as cars when it is more necessary for life.  The answer to this is supply.  There is a much greater supply of water than of cars because it is relatively easy to obtain and distribute water.  Many steps and a great deal of labor and capital are required to make motor vehicles.  Essentially everything in a motor vehicle has to be manufactured by people.  This requires many resources (land), a fair amount of labor, and a lot of machinery (capital).  By contrast, providing water to people costs very little once pipes are laid in the ground or once you have created your bottled water plant.

I believe your teacher has asked this question to help you understand two things.  First, GDP is a measure of price, not of importance.  Second, price is determined by forces of supply and demand, not by the intrinsic value of an item (which is why, for example, a diamond that is used to decorate someone’s finger and is absolutely unessential to life can cost much more than water).

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