# GDP simple question got me confused: the sale of a capital asset

a) Delta Air Lines buys a new jet from Boeing for 200 million dollars.

b) Delta Air Lines sells **one of its jets to Kim Kardashian for 100 million dollars.

So..

a) \$200 million investment, purchase of the final good, so GDP increased by 200 M

b) No change, but why? Even if the had bought the plane for 50 million and made profit by selling it to Kim? Here's my in length answer I am not too certain of:

Does not change. Why? This good was already included in GDP. It was produced and sold. It has not been modified by Delta Air Lines, thus absolutely no value added to this plane. It is simply the ownership transfer of a good that was bought. However...Wasn't that a service? I mean, Delta made it EASIER for Kim to buy a plane. They provided a service, so a profit would be added to GDP...NO?

No, the sale of a capital asset doesn’t count in GDP, as the cost of the asset was already accounted for when the plane was first sold to Delta. To your second point, if a broker somehow provided a service by facilitating the sale, that would count towards GDP, but the sale itself would not.

Broadly speaking, second hand sales do not add to a country's GDP. GDP is Gross Domestic Product - in other words, the total amount Produced by the country. Second hand sales do not tend to involve production, so there is no reason to include second hand sales in GDP.

However, if some value is being added to the product then that value addition would certainly count.

Second hand good

Goods sold by primary consumer to another consumer deducting the depreciation price.

Depreciation denotes the wear and tear of that product or the part of that product which the primary consumer has consumed.

If product is sold without any modifications or repair

Consider this example: I am buying a Pencil box for ₹30. It contains 10 pencils and I consume one pencil per day. The price of each pencil will be ₹3 obviously. The life of that Pencil box is 10 days, in monetary terms ₹3 per day. I use 8 pencils in 8 days and sell the remaining two to my enemy for ₹6.

I had brought that Pencil box for ₹30. that means I have consumed ₹24 of that product. ₹24 has been depreciated and the remaining value of that product is what is the second hand price. Thus it is a mere sharing of expenses and no value gets added whatsoever.

Compare this with a Motor bike being sold as a second hand. It may be brought for ₹50,000 but the owner sells it for ₹20,000 which means he has consumed ₹30,000 worth of that product and given the remaining to the other.

If product undergoes some value addition.

If the product is enhanced by value addition, then Depreciated price+ Value added will be the price of that good. Here depreciated price is intrinsic value as given by the above example. Extra money added is due to that value addition and this part gets added to the GDP since it is not already there but newly added.