Question

The output approach to calculating GDP

The following chart provides production data for selected cars. All prices are quoted in U.S.
dollars.
------------------Ferrari F1------Ford Focus--------Honda CRV
------------Origin / Price-----Origin / Price---------Origin / Price
Engine-----Italy / 60,000----Mexico / 5,000-------USA / 7,000
Trans------ Italy / 50,000----Mexico / 4,000-------USA / 5,500
Body--------Italy / 55,000-----USA / 3,000-----Japan / 4,500
Other------- Italy / 30,000-----USA / 1,500-----Japan / 2,000
The Ferrari F1 is produced in Italy. It costs dealerships $280,000 to import the F1 into the
United States and it sells at an MSRP of $350,000. The Ford Focus is produced in Mexico.
The Focus costs dealerships $20,000 to import into the United States and it sells at an
MSRP of $25,000. The Honda CRV is produced in the United States and costs dealerships
$23,000. The CRV sells at an MSRP of $30,000. Calculate each car’s contribution to U.S.
gross domestic product.

Answer 1

Hi

Please see the calculations below:

	Ferrari	Focus	Honda CRV
Import Price or Cost of Production in US	280000	20000	23000
MSRP	350000	25000	30000
Revenue	70000	5000	7000
Gains from Other parts mfd in US	0	4500	12500
Loss due to import of other parts	0	0	6500
Contribution to the US GDP	70000	9500	13000

Note:: For CRV, since Japan makes certain part worth 6500, it is subtracted from the final revenue (i.e. Price- Cost of Production) to get value added to the US GDP. Similarly, for import of Focus cars, we add benefits from export of some parts to the US GDP