Question

Country C produces 1,000 pounds of cotton at a cost of 50 cents per pound. They sell all of the cotton to Country S for 75 cents per pound. Country S makes 1,000 t-shirts with the cotton for a total cost of $1.50 per t-shirt. They sell all of the shirts to Country R for $2.00 each. Country R sells 950 of the t-shirts to domestic consumers for $10 each and the total cost of producing each shirt is $8 each. There are no other firms in this simple world. All income in the economy is either profit income or wage incone. 4. a. b. c. Find the value added bv each country What is the value of world GDP? Percentage wise, how much income is earned by workers as opposed to the owners of capital in each country?

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Answer 1

Answer:

The value of consumption is $9500 and the value of investment is $400 .

In this problem C has maufactured cotton of 1,000 pound at 50 cent per pound. It has been stated that cost will include either wage income or profit income. So 50 cent is wage income of C. Now it will add 25 cent profit and sell these cotton to S at 75 cents.

S now will earn wage income of 75 cents with cotton. It is wage income of S. Thus wage cost per t shirt is $1.50. It will add $0.50 per T shirt and will sale 1,000 shirts to R at $2 per shirt.

R now will add labor cost (i.e. wage income) of $6 per shirt. So total cost is $8 per T shirt. Now it added profit of $2 with it and sold at $10 pershirt. Out of 1,000 shirts, 950 shirts are sold. So 50 T shirts is end Inventory. It is Investment. This detailed analysis is shown in the table below:

Details	Consumption value	Wage Income	Profit Income	Investment value
1. 1,000 pound cotton produced by C at 50 ceiling per pound	1,000x50 cent =$500	$500	NIL	NIL
2. Profit on 1,000 pound at 25 cents	1,000x25 cent =$250	NIL	$250	NIL
3. Cost of cotton to S	$750
4. Wages for T shirt at 75 cent	1,000x75cent =$750	$750	NIL	NIL
5. Profit income of 50 cent per shirt	1,000x50cent =$500	NIL	$500	NIL
6. Buy price of 1000 T shirt by R	$2,000
7. Wages added by R at $6 rate	$6,000	$6,000	NIL	NIL
8. Total cost of 1,000 shirt produced	$8,000
9. Unsold Shirts 50 nos x $8	-$400	NIL	NIL	$400
10. Cost of 950 shirts sold	$7,600
11. Profit of R [950x$2]	$1,900	NIL	$1,900	NIL
Sale value,Consumption, Inventory	$9,500	$7,250	$2,650	$400

Thus value of consumption is the total value of 950 shirts sold to consumers. The value of consumption is $7,250.

Value of Investment is the value of End Invetory. It is $400.