Question

Should these be in a comprehensive measure of GNP? (a) Time spent by students in lectures. (b) The income of muggers. (c) The wage paid to traffic wardens. (d) Dropping litter.

Short answer

Only the wage paid to traffic wardens should be included in the GNP.

Step-by-step solution

Understanding GNP

Gross National Product (GNP) is the total market value of all final goods and services produced by the residents of a country during a specific time period, regardless of where they are located. It includes production that occurs nationally and internationally by a nation's residents.

Evaluating Time Spent by Students in Lectures

Time spent by students in lectures is not a market transaction and does not result in the production of a market good or service. Therefore, it does not contribute to the total market value accounted for in GNP.

Evaluating the Income of Muggers

The income earned from illegal activities is typically not included in the GNP. GNP accounts for legal market activities, and illegal transactions such as mugging do not count towards the economic measures like GNP.

Evaluating the Wage Paid to Traffic Wardens

The wage paid to traffic wardens is a legitimate market transaction involving payment for services rendered. Traffic wardens contribute to the service sector of the economy, and their wages should be included in the GNP.

Evaluating Dropping Litter

Dropping litter is not an economic activity and does not result in the production of goods or services. It is not a part of market transactions, so it is not included in the GNP.

Key concepts

Market Transactions

Market transactions are essential for measuring the Gross National Product (GNP). They are the exchanges of goods and services that take place in the marketplace.

• Nature of Market Transactions: These transactions typically involve a buyer and a seller agreeing on a price for a good or service. The transaction is considered legal and arms-length, which means it is conducted without any coercion or strings attached that may distort true market value.
• Examples of Market Transactions: Buying a loaf of bread, paying for a haircut, or hiring someone to clean your house. Each of these involves an expenditure that reflects a product or service value touching the national economy.
• Non-Market Transactions: These include activities like spending time in lectures or dropping litter. While they are activities, they don't involve an economic exchange in the marketplace and hence, aren't countable in GNP.

In summary, only market transactions are part of GNP calculations as they reflect actual economic activity contributing to the economy's total market value.

Economic Activities

Economic activities encompass the broad range of human actions that lead to the production, distribution, and consumption of goods and services. They are broadly categorized into three sectors: primary, secondary, and tertiary.

• Primary Activities: These involve the extraction and production of natural resources, such as mining and agriculture.
• Secondary Activities: These mostly consist of manufacturing processes where raw materials are transformed into finished products, like automobiles and electronics.
• Tertiary Activities: This sector, also known as the service sector, provides services instead of goods, such as teaching, law enforcement, and healthcare.

Understanding these activities helps us recognize their roles in the economy, especially how they contribute differentially towards measures like GNP, focusing on legal, market-based contributions.

Service Sector

The service sector, also referred to as the tertiary sector, plays a crucial role in modern economies. It is primarily focused on providing intangible goods and services to consumers and businesses.

• Examples of Services: Include healthcare, education, legal services, and hospitality, among others. Traffic wardens, highlighted in the exercise, are part of this sector given their service-oriented role.
• Contribution to GNP: The service sector is a major contributor to GNP as it encompasses a significant portion of economic activities. The wages and salaries paid for services, such as those to traffic wardens, are included in GNP as they represent legitimate market transactions.
• Growth Importance: In many economies, the service sector is the largest contributor to GDP and GNP, highlighting its importance in fostering economic growth and employment.

By understanding the service sector, one can appreciate how diverse economic activities, from providing essential services to leisure and entertainment, bolster the national economy.