Question

Suppose that early in a year, a hurricane hits a town in Florida and destroys a substantial number of homes. A portion of this stock of housing, which had a market value of \(100 million (not including the market value of the land), was uninsured. The owners of the residences spent a total of \)5 million during the rest of the year to pay salvage companies to help them save their remaining belongings. A small percentage of uninsured owners had sufficient resources to spend a total of \(15million during the year to pay construction companies to rebuild their homes. Some were able to devote their own time, the opportunity cost of which was valued at \)3 million, to work on rebuilding their homes. The remaining people, however, chose to sell their land at its market value and abandon the remains of their houses. What was the combined effect of these transactions on GDP for this year? (Hint: Which transactions took place in the markets for final goods and services?) In what ways, if any, does the effect on GDP reflect a loss in welfare for these individuals?

Short answer

The effect on GDP reflects a loss in welfare for these individuals in the following ways.

Step-by-step solution

introduction

Figuring out what was the joint impact of the exchanges on GDP this year and in what ways did the impact on GDP mirror a misfortune in government assistance for these people.

The exchanges remembered for the GDP are various like, the occupants spending to rescue organizations to assist them with saving their leftover assets. Spending on development organizations to help them to revamp their home.

explanation

The open door costs are excluded from GDP.

The deficiency of public government assistance isn't taken into GDP estimation, so it affects GDP.

Assuming the typhoon hits Florida there ought to be some misfortune in public government assistance however GDP shouldn't consider that misfortune, it just adds the upsides of definite merchandise and administration.

Gross domestic product evades a few subjective variables on the grounds that its estimation is intricate.