March 21, 2018 

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BENEFIT PRINCIPLE: A principle of taxation in which taxes are based on the benefits received by people using the good financed with the tax. The benefit principle is often difficult to implement because by their very nature, many government produced goods (public goods) do not have easily measured benefits. But in those cases where benefits are identifiable, government is not shy about establishing taxes, fees, or charges in accordance with the benefit principle. Public college tuition, national park admission fees, and gasoline excise taxes are three common examples. The beneficiaries of education, a wilderness experience, and highway use are asked (required) to pay accordingly.

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The production of final goods and services that takes place during a given time period. The emphasis here is on time period, especially the CURRENT time period. The macroeconomy's prime measure of current production is gross domestic product. Current production is best contrasted with transactions for past production and future production, both of which are excluded from gross domestic product.
Current production results when raw materials and natural resources are transformed into final goods and services--DURING THE CURRENT TIME PERIOD. This production is then available for purchase by the household, business, government, and foreign sectors as consumption, investment, government purchases, and exports. Such production need not actually be purchased by these four sectors, so long as their production has been completed and is available for purchase. (The difference between the production being purchased and being available for purchase is change in private inventories, which plays a key role in business-cycle instability.)

Most important for the calculation of gross domestic product, current production excludes past and future production.

Past Production

Past production is the easiest of the two. This is production that was undertaken during a previous period. The prime presumption is that past production was already included in gross domestic product when produced during this previous period. If it were also included during the current period, as part of current gross domestic product, then it would be included twice. This would seriously overstate the value of gross domestic product.

The exclusion of past production is an issue because the first step to measuring that current production and gross domestic product is to identify market transactions. Unfortunately, market transactions include a lot of activity, some current production and some past production. Suppose, for example, that Jonathan McJohnson is in the market to buy a car. He has test driven a brand new (as in current production) OmniMotors XL GT 9000 Sports Coupe. And while he likes it A LOT, the price is a little steep for his bank account. He has also test driven a two-year old OmniMotors DX 6000 Sedan. The price is a little more accommodating, even though it has two-years worth of use.

What to do? What to do?

While the car Jonathan ultimately buys would seem to concern no one but him, this choice does affect gross domestic product. Should he choose the BRAND NEW XL GT 9000 Sports Coupe, then current production and gross domestic product reflects the value of this vehicle. Should he opt for the TWO-YEAR OLD DX 6000 Sedan, current production and gross domestic product are NOT affected. The reason the second alternative has no affect on current production is that this car was previously included in current production TWO YEARS EARLIER when produced.

Past production includes market transactions for ALL previously produced goods. This includes used cars, used houses, used appliances, used furniture, garage sale items, and any other used consumer good. Also included in this category are used capital goods, which is extremely important to the stock market. In particular, corporate stock, the same stock regularly traded through stock markets, represents ownership of existing capital, including factories, buildings, and equipment. This means that stock market transactions are, for the most part, the exchange of past production, capital goods previously produced.

Future Production

Future production is the production of goods and services that has not yet been fully completed. When this production is fully completed, then it will be included in gross domestic product as current production at that time. The prime example of future production is intermediate goods. Intermediate goods are "partially" produced goods that will undergo further processing before becoming final goods AND CURRENT PRODUCTION. If market transactions for future production (that is, if intermediate goods) were included now, then again when completed, gross domestic product would be overstated and double counting would result.

Suppose, for example, that the MegaTread tire company produces a set of All Season MegaTread tires. While this might seem like current production, such is not necessarily the case. Suppose Jonathan McJohnson buys this set of tires for his two-year old OmniMotors DX 6000 Sedan. Because these tires will be used for his personal driving enjoyment, they are current production and are included in gross domestic product.

However, what might happen if OmniMotors, the makers of the popular XL GT 9000 Sports Coupe, buys these tires as an intermediate good in the production of a 9000 Sports Coupe, which will not be completed and ready for sale until next year? In this case, the production is not yet finished and will not be finished until the following year. At that time the value of these tires will be included in the value (that is, price) of the XL GT 9000 Sports Coupe. At that time, the value of the tires and 9000 Sports Coupe will become current production and will be included in gross domestic product. Including the value of the tires the current year, too, would entail double counting.


Recommended Citation:

CURRENT PRODUCTION, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2018. [Accessed: March 21, 2018].

Check Out These Related Terms...

     | final goods | intermediate goods | double counting | in-kind payments | value added | underground economy |

Or For A Little Background...

     | gross domestic product | gross domestic product, ins and outs | production | National Income and Product Accounts |

And For Further Study...

     | gross domestic product, welfare | gross domestic product, expenditures | gross domestic product, income | net domestic product | national income | personal income | disposable income | gross national product | real gross domestic product | circular flow | business cycles | Bureau of Economic Analysis |

Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis |

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