Suppose that furniture production encompasses the following stages: Stage 1: Trees are sold to lumber company....

Suppose that furniture production encompasses the following stages: Stage 1: Trees are sold to lumber company. Stage 2: Lumber is sold to furniture company. $ 1,000 $ 2,500 Stage 3: Furniture company sells furniture to retail store. $ 6,000 Stage 4: Furniture store sells furniture to consumer. $12,000 (a) What is the value added at each stage? (b) How much does this output contribute to GDP? (c) How would answer (b) change if the lumber were imported from Canada

Solutions

Expert Solution

(a) Value added at each stage is computed as under:

Stage	Value of Transaction	Added Value
1	1000	1000
2	2500	1500
3	6000	3500
4	12000	6000
	21500	12000

Workings:

(b) This output contribute to GDP = $12000.

Contribution of this output to the GDP is the sum of the added value at each stage of the production = 1000+1500+3500+6000 = $12000.

(c) If the lumber were imported from Canada, then the first stage which has a transaction value of $1000 is excluded: $12000-$1000 = $11000.

Rahul Sunny answered 1 year ago

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