A broker earns a commission on the sale of a used car. Which statement is correct regarding GDP and welfare?
Answer and explanation
Correct answer: Only the value of the brokerage service enters current GDP
GDP records current production, not every resale transaction. The used car was produced and counted in an earlier period, so its full resale price is not added again. However, the broker supplies a current service and earns a commission for it; the value of that service is included in current GDP. This accounting inclusion alone does not prove that welfare has risen.
Frequently asked questions
What is the correct answer to this question?
Only the value of the brokerage service enters current GDP
Why is this the correct answer?
GDP records current production, not every resale transaction. The used car was produced and counted in an earlier period, so its full resale price is not added again. However, the broker supplies a current service and earns a commission for it; the value of that service is included in current GDP. This accounting inclusion alone does not prove that welfare has risen.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
