Question

In: Economics

1. Wheat farmer sold all his production of wheat to flourmills for $10,000. The flourmills made...

1. Wheat farmer sold all his production of wheat to flourmills for $10,000. The flourmills made wheat flour and sold it to National Bakery for $12,000. The National bakery used the flour to bake bread and sold the entire bread to submarkets for $15,000. The Supermarkets sold all he bread to public (nationwide) for $16,000. (2.5 marks) a. What is the value added for the Farmer? b. What is the value added for the flourmill? c. What is the value added for the Bakery? d. What is the value added for the supermarket? e. Which amount will be calculated in GDP and why?

Solutions

Expert Solution

Value added for farmer = $10000

value added =

value of output - intermediate cons

value of output = sales + change in stock

total sales by farmer = 10000

thus,value added = 10000

b) value added for the flourmill

Flourmill purchased wheat from farmer will be treated as intermediate consumption

sales = 12000

value of output = sales + change in stock

value of output = 12000

value added = 12000 - 10000

value added = 2000

c) value added for bakery

value of output = sales + change in stock

value of output = 15000

intermediate cons = 12000

value added = 15000 - 12000

value added = 3000

d) value added for supermarket

Sales = 16000

intermediate cons = 15000

value added = 16000 - 15000

value added = 1000

e) GVA at market price ( gross value added at MP ) or GDPmp will be calculated.

Reason : by calculating market value of all final goods and services produced within the domestic territory of a country in a year we will get GDPmp.

value added or product method provides GDP at production phase of economy.

By adding value added for all 4 firms given above we will get GDPmp or GVAmp

GVAmp = value added for farmer + value added for flourmill + value added for bakery + value added for supermkt

GVAmp = 10000 + 2000 + 3000 + 1000

GVAmp = 16000

​​

  

Rahul Sunny answered 2 years ago
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