Economics has yet to come up with better measures of economic performance of an economy and well-being of the society than total output and output per capita.

The total output sets the constraint on how much a country’s population can consume, invest, export, and allocate to government spending including defense of the country.

The material well-being of the country is measured by the output per capita, which is simply the total output divided by the population. We will use the gross domestic product (GDP) as a measure of total output. 

What is GDP?

The most used way of measuring total output of a country is gross domestic product (GDP). GDP is all final goods and services valued at market prices and produced within domestic borders of a country in a given period.

What do we mean by valued at market prices?

A country produces many different products and services. 

According to a source, as of 2016, Amazon alone carried 12 million products alone excluding books, media, beverages and services.

If we included products available from marketplace sellers this figure would jump to 354 million plus products.

The challenge, therefore, is that we should find a way to aggregate these different products and services into a single value.

How? Imagine a very small date farmer, Abdullah, producing two types of dates, Ajwa and Anbara – 1,000 kilograms of Ajwa with market price of 6 SAR per kilogram and 1,500 kilograms of Anbara, with market price of 5 SAR per kilogram in 2022.

We cannot add 1,000 kilograms of Ajwa to 1,500 kilograms of Anbara to conclude that Abdullah produced 2,500 kilograms of dates in 2022.

That would be wrong because Ajwa dates are not the same as Anbara dates; they are essentially two different products!

Instead, we should calculate total SAR values for each type of date produced at their market prices, that is, 6,000 SAR for Ajwa and 7,500 SAR for Anbara, and then add these SAR amounts together to conclude that total SAR value of Abdullah’s production is 13,500 SAR in 2022.