Question

A farmer grows wheat, which she sells to a miller for $90. The miller turns the wheat into flour, which she sells to a baker for $145. The baker turns the wheat into bread, which she sells to consumers for $155. Consumers eat the bread, Assume that these transactions account for all economic activity in this economy GDP in this economy is $100 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 just described, complete the following table by calculating the value added for each of the three producers. Then enter the total value added in the final row. Value Added (Dollars) Producer Farmer Miller Baker True or False: The total value added for the three producers in this economy does not equal the economy's GDR O True • False

Answer 1

Assuming that all the economic transactions from the farmer to the final consumer account for all economic activity in this economy,

GDP in this economy is $155.

Gross Domestic Product (GDP) is the final value of all goods and services produced within the domestic boundary of a country. Here, since the final value of the good produced, bread is $155, this value is the GDP in this economy.

Assuming that there are no intermediate goods beyond these just described,the following table is completed by calculating the value added for each of the three producers. Then the final value is added in the final row.

Producer	Value Added (Dollars)
Farmer	90
Miller	55
Baker	10
Total	155

These value added by each of them is calculated as follows:

The farmer first sells it to the miller for = $90, so this is the value added by him. The Miller sells it to the Baker for = $145, so the value added by him is = $145 - $90 = $55. The baker sells it to the consumer for = $155, so the value added by him is = $155 - $145 = $10. Finally, the total is the sum of all the value added by farmer,miller and baker.

Statement: The total value added for the three producers in this economy does not equal the economy's GDP. - False

This statement is false because as we see from the table, the total value added by the three producers is equal to the economy's GDP.

Statement: As a result, you would expect that GDP per person in India and United States will differ by more than their actual comparative economic well being. - True

This statement is true because GDP should account for the final value of all goods and services produced but here, the final value of home made food is not being accounted for and hence they will differ by more than their actual comparative economic well being.