Question

Question 8 0.1 pts The table below describes a simple economy that produces wood and furniture with multiple stages in the production process. First, the timber company collects wood and sells it to the sawmill. The sawmill converts the wood to lumber and sells part of it to the public as a final good and part to a furniture manufacturer. The furniture manufacturer uses the lumber to produce furniture that is sold as a final good to the public. Timber Company Sawmill Furniture Manufacturer $800 $2,000 $200 $1,300 $400 $500 $200 $200 $400 Revenues Wages Intermediate Goods $0 Profits $350 $50 What is the value of GDP in this economy?

Answer 1

Value added = value of output - intermediate goods.

Here, value of output = price × quantity.

value of output = revenue.

So, value added = revenue - intermediate goods.

1. Value added by Timber Company.

Value added = $400 - $0.

Value added = $400

2. Value added by Sawmill.

Value added = $800 - $400.

Value added = $400.

3. Value added by Furniture manufacturer.

Value added = $2000 - $500.

Value added= $1500

Now, GDP will be the sum of value added by

each firm.

So, GDP = (1) + (2) +(3).

GDP = $400 + $400 + $1500.

GDP = $2300.

Thus, the value of GDP in this economy is $2300.