Question
Question Value: 35 Jabahri is willing to spend up to \( \$ 20 \) of the \( \$ 100 \) he currently has to ride a cable car. If San Francisco sells cable car rides for \( \$ 10 \), then GDP would the economic value of Jabahri riding a cable car by _ underestimate; \( \$ 10 \) since GDP is based on prices and not values. overestimate; \( \$ 90 \) overestimate; \( \$ 10 \) underestimate; \( \$ 90 \)
Ask by Bates Riley. in the United States
Jan 19,2025
Real Tutor Solution
Tutor-Verified Answer
Answer
The economic value of Jabahri riding a cable car is underestimated by \$10.
Solution
The correct answer is:
**underestimate; \$10**
**Explanation:**
- **Willingness to Pay vs. Actual Price:** Jabahri is willing to spend up to \$20 on a cable car ride, indicating that the economic value he places on the ride is \$20.
- **GDP Measurement:** GDP measures the market value of goods and services based on the actual transaction price, which in this case is \$10 per cable car ride.
- **Economic Value vs. GDP:** Since Jabahri's willingness to pay (\$20) is higher than the price paid (\$10), GDP only captures the \$10 value, thereby **underestimating** the true economic value by \$10.
**Final Answer:**
**underestimate; \$10**
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Simplify this solution Bonus Knowledge
When Jabahri spends \( \$ 10 \) for a cable car ride, it reflects the market price, but his personal valuation is \( \$ 20 \). This indicates that he values the ride more than its market cost. Therefore, when calculating GDP solely based on the price of the ride, the actual economic value from Jabahri's perspective is underestimated. Since he is willing to spend \( \$ 20 \) but only pays \( \$ 10 \), the difference of \( \$ 10 \) represents the surplus value he feels he gains from the ride, which isn't captured in the GDP measure under current pricing. Thus, the correct understanding is that GDP would underestimate the economic benefit of Jabahri's experience.
