If someone goes for a haircut, does it increase GDP?

Question

If I go for a haircut, am I causing the GDP to rise because consumption is rising?

Answer 1

Existing answers are correct, yes, you are increasing GDP.

GDP is a crude measure of how much is spent during a year. This is used as a proxy for living standards (the thinking goes: if an economy is spending more, there's more economic activity and it's probably doing better).

But the logic doesn't always hold, for example:

Consider a scenario where you break my window and I break yours, and we both pay the glazier \$100 each to fix our windows. Our living standards are unchanged, despite the fact that our actions increased GDP by \$200!

Answer 2

Yes, it would (unless you get your haircut at the gray market). GDP is statistics that measures the value of all final goods and services created in a specific period of time.

Because it is a statistics it can only be measured if the transaction is done in a proper market. In a gray economy - economy that is not illegal like the black market but also not official, getting a haircut while paying person indirectly with favor or by giving them money unofficially as to avoid taxes, the haircut would not be counted. However, otherwise, it is included.

Answer 3

Yes, the haircut will contribute to the gross domestic product of the country; ‘haircut’ is like any other service that you might avail. However, you will not add, sometimes, the entire amount paid. One will deduct the cost of intermediate goods consumed, to prevent the problem of double counting.

Answer 4

Any voluntarily transaction (such as going for a haircut) increases GDP. The logic is simple: A sells a good for 100 to B because A values the good to less than 100 while B values it to more than 100. The difference between A's and B's valuation of the good increases the GDP. If A had valued it to more than 100 and/or B to less than 100, A would never have sold it for 100 and/or B would never have bought for 100.

A side note: people are wrong about what GDP is. It is not limited to the legal part of the economy, although it is, for obvious reasons, easier to estimate. It is common that economists try to calculate the full GDP by, by different methods, estimating the grey and black economies. The GDP definition is agnostic for how economic activity takes place.

Answer 5

The answer is yes and no in some cases , in developing countries these type of activities are performed by self employed individual with low capital , and mostly payments done in cash ,and these individuals ( most of them doesn't have tax liability , never file returns , and are not registered, unregulated under state or central authority ) . This activitiy fall under informal sector in developing countries unless they get registered under the respective authority . The informal economy is that part of economy which is not reported in official statistics such as the gross domestic product of a country. The informal economy is not taxed, and includes the black market. In developing countries over 70% of the people work in this form of economy. They are self-employed, because it is difficult to find an employer to hire them. People working in this form of economy have no social benefits or social security, which are usually only given by the state to those who have made tax contributions. Examples include food and flea markets, street vendors, laundromats and the like, mostly in rural or informal areas. It is considered informal since these businesses are rarely registered at national or regional levels, are cash-based and thus do not pay taxes and usually do not have formal arrangements with employees.

Answer 6

Let's first talk about potatoes. Suppose a farmer grows some potatoes and sells them to McDonald's for \$200,000. So this constitutes \$200,000 towards GDP. Clearly, the primary cause of that \$200,000 of value existing is the farmer's work. If McDonald's hadn't bought the potatoes, the farmer could have sold them to Burger King. However, when you look at the tally for the GDP, the sale is what will be listed as what the \$200,000 is coming from. So if you're just looking at what the final event that preceded the increase in GDP is, it's the sale. But it's the farmer's work that is actually the primary cause of the value coming about. So if you ask "Did McDonald's buying the potatoes increase the GDP by $200,000", the answer depends on what you mean by "increase".

Now, back to the haircut. The applicability of the above may be harder to see, because the potatoes existed before the sale, while the haircut doesn't exist until you get it, but the same principle exists. The ability of the cosmetologist to give you a haircut exists before you get a haircut, and you are using that ability up, just as McDonald's is using up the potatoes. Just as those potatoes could have gone to Burger King, the haircut could have gone to someone else. If you pay \$20 for a haircut, you are using up \$20 of value. That's \$20 of value that isn't available to someone else, someone else that could have paid \$20 instead. If someone else had gotten the haircut, the same \$20 would have been added to the GDP. And so the net effect of you getting a haircut is not to increase the GDP by \$20, because it's money that would have gone towards the GDP anyway.

When you engage in economic activity, you move the demand curve (if you're buying) or supply curve (if you're producing). In doing so, you possibly move where the equilibrium price is, and/or how much is sold at that price. It is how much that effect is that is the net effect of your actions on the GDP. So if we're talking about the net effect on GDP, getting a \$20 haircut probably increases the GDP much less than \$20 (one would have to know the elasticities of the curve to know for sure). If you're just interested on the immediate effect, then it increases it by the full \$20.

If someone has a problem with this, I think basic common decency demands that they present their issues in a civil manner, and not post dishonest, nonsensical comments, or merely downvote without any comments at all