What’s it called if I buy something like a sandwich, then consume it, and the net worth of society has now shrunk by 1 sandwich? Versus buying something that keeps its value.

Question

Maybe a better example would be a country getting leveled in a war. All of the money is still there, but now everyone is poor and has no net worth. How does that work?

It seems kind of like losing that amount of money, even though we didn’t?

In: 3475

Answer 1

From an economics standpoint, eating the sandwich is consumption. Purchasing a plot of land is investment in an asset. Neither one is good or bad, they just do different things.

Some purchases seem to blur the lines. If you buy a house to live in, it’s both an asset and something that gets used. That gets accounted for by counting the house itself as an asset, and living in the house as consumption, since you could otherwise rent it out. (Passing up on this is called the opportunity cost.)

In practice, even though you could try to hold onto a sandwich and resell it, it’s treated as immediate consumption with an asset value of zero. Which I would endorse if you ever try to sell me a second-hand sandwich.

As far as “the net worth of society”, remember that the sandwich was only made to be eaten, because it was expected to be eaten. All the stuff and effort that went into making it won’t ever be used if people stop eating sandwiches. The “worth of society” won’t need to change. People will just start producing the stuff that replaced sandwiches.