Question

Consider the table. Mother Nature 2950 0 Tlaloc 7750 2950 Bob 19950 0 0 7750 Value of sales ($) Dirt ($) Bricks ($) Wages ($) Interest payments ($) Rent ($) Profits ($) Total expenditure ($) 1000 1000 700 250 2950 3700 600 100 400 7750 10000 900 650 650 19950 Mother Nature produces dirt, Tlaloc turns the dirt into brick, and Bob creates brick houses. The economy is characterized by the table. Note all figures are measured in dollars. What is the value added for Mother Nature? What is the value added for Tlaloc?

Answer 1

Value added is the addition made to the value of a product in each stage of the production. It is calculated as the difference between the sales amount and the cost of intermediate goods used in the production. Use the above information to calculate value added for the three firms as given in the answer below. Value added for Mother Nature: Value added = Sales - Cost of dirt - Cost of bricks = $2950 - $0-$0 = $2950 Thus, value added for Mother Nature is $2950). Value added for Tlaloc: Value added = Sales - Cost of dirt - Cost of bricks = $7750-$2950 - $0 = $4800 Thus, value added for Tlaloc is $4800.

Value added for Bob: Value added = Sales – Cost of dirt - Cost of bricks = $19,950-$0-$7750 = $12,200 Thus, value added for Bob is $12,200.