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Why do sale of used goods do not add to income of a country in a particular year? If you think of income as the inflow in your bank account. All outflows are just expenditures. So I think of income as how much stuff can someone buy in a particulat year. Lets say person A bought a football for 50 dollars. Someone's income is increased by 50 dollars. So currently total income of society is 50 dollars in the current year. Now the guy who bought it sells it for 30. His income in this year is 30. All outflow is expenditure, in other words you are making use of your income. It does not really reduce income. So total income of society in this year should be 50 + 30 = 80? What is wrong with this logic?

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  • $\begingroup$ Because we want to measure economic activity in terms of goods produced. We only need them to be sold to be able to attach a price to them. Otherwise, reselling the same good arbitrarily often will just blow up GDPs and make inter temporal comparisons even harder. $\endgroup$ – FooBar Mar 13 '15 at 14:57
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As @FooBar mentions in a comment, with "Income" we want to measure what we produce (production being the whole targetfocus of economic activity, with consumption being the ultimate purpose).

Measuring Income as

"If you think of income as the inflow in your bank account."

may appear an adequate approach to measure it for some situations: if I work and my employer pays me by bank-transfers, all my income is the sum of these inflows (I am sure that the OP meant to exclude other kinds of inflows, like for example from one of my accounts to another).

So, If I sell something that belongs to me, doesn't that also increase my Income, and so National Income? No, it restructures your wealth in terms of liquidity: your non-liquid wealth decreased while your liquid wealth increased. You did not produce anything, you just liquidated part of your wealth.

Buying a football, is buying a durable consumer good. You don't get to eat the football, or burn it at a temple (at least in normal usage), you make use of its bouncing services to entertain yourself. So while you hold on to the football and you use it, it is a utility-enhancing capital good, and so part of your wealth.

The very fact that you were able to re-sell it, reveals that this durable/utility enhancing capital good was not fully depreciated, it still had some potential flow of services in it -this is why the other person paid you for it.

So it is selling of a capital good after this good has become wealth, and so it does not reflect production.

Mind you that the "Used goods Sector" does create Income: it offers services around the used goods: the good "Used football in my closet" is not the same good as "Used football in a shelf for sale". But the Income they generate is the difference between how much they paid me for the football, and how much they will sell it... which naturally leads us to the concept of "Value Added" which is the one we should make certain to understand accurately, in order to navigate in quantitative economics.

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