Question

During a given year, the following activities occur in two stages: i. A pear harvesting company pays its workers $70,000 to harvest 6,000 saitwater peans. The pearls are then sold to a jewelry manufacturer for $110,000. ii. The jewelry manufacturer pays the jewelry artists it employs $1,100,000 to make 3,000 sets of one-of-a-kind, high-quality pearl earrings, which the manufacturer sells directly to customers for $2,000,000 using the production-of-final goods approach, GDPin this economy is $ Round your response to the nearest dollar. What is the value added at each stage of production'? First stage -Round your response to the nearest dollar.) Second stage s(Round your response to the nearest dollar) Using the value-added approach, GDP is Round your response to the nearest dollar.) What are the total wages and profits earned? Total wages -nd your response to the nearest dolilar.) Profits earnound your response to the nearest doilar.) Using the income approach, GDP s (Round your response to the nearest dollar)

Answer 1

The final good produced is the 3,000 sets of the high-quality pearl earnings. These are sold for $2,000,000.

So,

Using the production-of-final-goods approach, GDP in this economy is $2,000,000.

In the first stage, pearl harvesting company is selling pearls for $110,000.

This company does not have any intermediate cost.

So,

Value added at first stage = Sales - intermediate cost = $110,000 - $0 = $110,000

First Stage = $110,000

In second stage, jewelry manufacturer has sold pearl earrings for $2,000,000. Jeweler has purchased pearls for $110,000.

So,

Value added at second stage = Sales - Intermediate cost = $2,000,000 - $110,000 = $1,890,000

Second Stage = $1,890,000

GDP = Value added in first stage + Value added in second stage = $110,000 + $1,890,000 = $2,000,000

So,

Using the value added approach, GDP is $2,000,000.

Total wages = Wages paid by harvesting company + Wages paid by jeweler

Total wages = $70,000 + $1,100,000

Total wages = $1,170,000

Profit of pearl company = Sales - Wages paid = $110,000 - $70,000 = $40,000

Profit of jeweler = Sales - wages paid - pearls purchased

Profit of jeweler = $2,000,000 - $1,100,000 - $110,000 = $790,000

Total profit = Profit of pearl company + Profit of jeweler

Total profit = $40,000 + $790,000

Total profits = $830,000

GDP = Total profits + Total wages = $1,170,000 + $830,000 = $2,000,000

So,

Using the income-approach, GDP is $2,000,000.