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Understanding Of The Concept GDP Assignment Paper
A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers eat the bread. (10 marks)
a. What is GDP in this economy? Explain.
b. Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those described above, calculate the value added of each of the three producers.
c. What is total value added of the three producers in this economy? How does it compare to the economy’s GDP? Does this example suggest another way of calculating GDP? Understanding Of The Concept GDP Assignment Paper
Step 1/3
a. The GDP (Gross Domestic Product) in this economy is $180, which is the total value of the economy's final goods and services.
GDP is the total market value of all final goods and services produced in a given time period, usually a year. In this case, the final good is bread sold to consumers, and its value represents the contribution to the economy's GDP.
GDP is the total market value of all final goods and services produced in a given time period, usually a year
Step 2/3
b. Each of the three producers' value added can be calculated as follows: Understanding Of The Concept GDP Assignment Paper
The farmer's value added is equal to $100 (selling price to miller) - $0 (no intermediate goods used) = $100.
The miller's value added is calculated as follows:
$150 (selling price to baker) - $100 (buying price from farmer) = $50.
The baker's value added is calculated as follows:
$180 (consumer selling price) - $150 (miller buying price) = $30
The contribution of a specific industry or sector to the overall production of goods and services in an economy is referred to as Value Added in GDP.
Step 3/3
c. In this economy, the total value added of the three producers is $180 ($100 + $50 + $30). This is the total value added to the production process by each producer. The total value added is the sum of each producer's value added.
This example does suggest another method of calculating GDP: Adding the value added at each stage of production. This is known as the value added approach to GDP calculation. This approach has the advantage of avoiding double counting, which can occur when the value of intermediate goods is included in GDP Understanding Of The Concept GDP Assignment Paper.
The total value added of the three producers is $180 ($100 + $50 + $30).
Final answer
I have answered all 3 points in an easy way. I hope you'll get a good understanding of the concepts.
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Understanding Of The Concept GDP Assignment Paper
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