Final answer:
The concept discussed in the question is Nominal GDP, which is the total market value of goods and services produced in an economy, calculated using current prices. The example shows that Nominal GDP increases when the price of the economy's sole product, smart TVs, rises from $1,000 to $1,500, even with production staying constant at 10,000 units.
Step-by-step explanation:
When examining the changes in an economy over different years in the context of only one product, it is clear that this scenario deals with the concept of Nominal GDP. Nominal GDP is the market value of all final goods and services produced in a country within a given period, calculated using current prices without taking inflation into account. To illustrate this, let's compare the example to the production of t-shirts by the company Coolshirts, which sold 10 t-shirts at $9 each.
In year one, the economy's Nominal GDP would be the number of smart TVs sold multiplied by the price, which is 10,000 TVs × $1,000 per TV, resulting in a Nominal GDP of $10,000,000. In year two, even though the same number of TVs are sold, the price has increased to $1,500 each, which means the Nominal GDP is now 10,000 TVs × $1,500 per TV, totaling $15,000,000. This increase in Nominal GDP could be due to inflation, increased demand, or other factors influencing the price.
Understanding nominal GDP can also benefit personal financial planning. For example, setting a budget to save for a new TV based on an economic want requires knowledge of current prices and potential changes over time due to economic factors such as inflation. Saving $100 each month might allow for a purchase in 10 months, but only if prices remain stable over that period.