sporting events, or drive new $45,000 cars? i mean, why if only OUTPUT rises can people afford all these products and luxuries and have many other things to be grateful for?
2 Answers | Add Yours
This analysis is actually based on the assumption that the output can be sold. Economic growth is generally measured in Real GDP and GDP is based on the market value of the goods and services that are produced. If the things that were produced had no market value (because no one wanted them) there would be no economic growth.
So the idea is that there is more output and the output is bought by someone. The money that firms get for the increased output will benefit the owners of the firms and their workers as well (assuming that the owners are able to pay more as output rises). These owners and workers are then able to buy the new products you mention.
What ever products individuals buy or use must be produced. If in the entire world only wheat was produced and no rice, then irrespective of how rich or poor a person is, no one will be able to buy or eat rice.
When we say the total output must rise, it is implied that this output consists of the products that people want to buy and use. Of course, it is not necessary that a country must produce all the goods and services needed or used by its people. A country may produce some types of goods and services in exchange for other goods and services that it does not produce. Still the country must produce enough surplus to export and buy other desired goods in exchange.
In general, when the economic output of a country is low, they must concentrate on producing and importing the essential goods like food, and clothing. But as income and prosperity level rises, and people are able to satisfy their basic needs, they turn their attention toward luxury goods. Therefore, people start to buy and use luxury goods like $45,000 cars only after their income rises above levels that permit them to buy all the things that have greater priority for them.
We’ve answered 318,989 questions. We can answer yours, too.Ask a question