Question

20: THE MEASUREMENT OF NATIONAL INCOME 505 nitoba re by a value and used who when as a h to 8 In 2015, the United Nations ranked Norway first on the Human Development Index-a ranking of the "quality of life" in many countries. Yet Norway was not ranked first in terms of real per capita GDP. Explain how the two rankings can be different. PROBLEMS 9 For each of the following situations, determine the value added for Canadian national income. 2 A Canadian farmer pays $100 for seeds to grow organic beets, which she sells to a produce distribu- tor for $1000. The distributor sells the beets to a restaurant for $1300, who then sells $2500 worth of beet salads. b. A mining firm uses $1 million worth of purchased inputs to extract bauxite, which it sells to an alum- inum company for $2 million. The aluminum com- pany sells $2.8 million worth of aluminum to a door manufacturer who sells $4 million worth of finished doors to a big-box retailer who sells them to the public for $6 million. C. A Canadian retailer imports $400 000 worth of toys from China and sells them for $1 million. The list below provides some national income figures for the country of Econoland. All figures are in millions of dollars. ing ide an his
question 9

Answer 1

A. The value of seed = $100.

Farmer buys seed at $100 and sells organic beer to distributor at $1000, hence value added = $1000 - $100 = $900.

The distributor sells at $1300 to restaurant which it buys at $1000, hence value added = $1300-$1000 = $300

Restaurant sells at $2500 which was bought at $1300, hence value added = $2500 - $1300 = $1200

Therefore, total value added = value of seed + value added by farmer + value added by distributor + value added by restaurant = $100 + $900 + $300 + $1200 = $2500, which is also equal to the final value of the product which was sold at $2500.

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B. Value of first input = $1 million

Mining firm bought inputs at $1M and sells its product at $2M => value added by mining firm = $2 - $1 = $1M

Aluminium company sold its product at $2.8M and bought input at $2M => Value added = $2.8M - $2M = $0.8M

Door manufacturer sold its output at $4M which uses inputs of value $2.8M => value added = $4M-$2.8M = $1.2M

Retailer's product sold at $6M and inputs used of $4M => value added = $6M - $4M = $2M

Hence total value added = value of the initial input + value added by mining firm + value added by aluminium company + value added by door manufacturer + value added by retailer = $1M + $1M +$0.8M+$1.2M+$2M = $6M, which is same as the final value of the finished door sold to public.

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C. The value of imports = $400 000 or $0.4M, which is counted in national income for the source country. The value added in this case = value of the product at selling price - import value = $1M - 0.4M = $0.6M. Hence, total value added in this case is $0.6M.

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