In a hotel, idlis and tea are goods – tangible, physical things you can touch and feel. The cooking and serving are services – not tangible, but crucial. Across the whole nation, goods and services are produced and paid for every day, and this is what the Gross Domestic Product (GDP) measures.
1. Definition of GDP
The GDP is the market value of all the final goods and services produced in the country during a time period.
GDP = C + I + G + (X − M), where C = Consumption, I = Investment, G = Government Expenditure, X = Exports and M = Imports.
- Goods are tangible items; services are intangible activities.
- Market value is the price at which goods and services are sold in the market.
2. Final Goods, Intermediate Goods and Double Counting
- Economists Tyler Cowen and Alex Tabarrok say that "final goods and services" are those which will be used or consumed.
- Goods used for producing other goods and forming a part of them are intermediate goods.
- Only final goods are included in GDP. Including intermediate goods would cause double counting, because their value is already in the final good.