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Question 15 The economy has a coal producer, a steel producer, and some consumers (no government...

Question 15

The economy has a coal producer, a steel producer, and some consumers (no government sector).

The coal producer

produces 15 tons of coal which sells for $5 a ton
pays $50 in wages
The steel producer

uses 25 tons of coal bought at $5 per ton, 15 tons come from the domestic coal producer and 10 from a foreign producer.
Pays $40 in wages.
Produces 10 tons of steel which sells for $20 per ton. 8 tons are bought by domestic consumer and 2 tons are exported.

Calculate GDP twice using different methods (choose 2 of the 3 methods).

Expert Solution

Product approach = Coal producer produces 15 million tons of coal at $5/ton = $75million

Steel producer produces 10million tons @ $20/ton = $200million. The steel producer pays $125 million for
25 million tons of coal at $5/ton

$200 - $125 = $75 million

Coal + steel = $75 million + $75 million = $150 million = Gdp

2. Expenditure approach =

Consumers buy 8 million tons of steel at $20/ton = $160 million

Exports are 2 million tons of steel at $20/ton, = $40 million

Imports are 10 million tons of coal at $5/ton = $50 million

Net exports = $50 million - $40 million = $10 million

GDP = $160 million - $10 million = $150 million

3. Income approach

Coal producer pays = $50 million wages

Steel producer pays = $40 million wages

$90 million in wages

Coal producer' s profit = Revenue - wages

Revenue - wages = $75 million (15 million ton@$5/ton) - $50 million = $25million

Steel producer's profit = revenue - wages - payment to coal producer

Revenue-wages = $200 ( 10 million tons @$20/ton) - $40 million - $125 million = $35 million

total profit = $25 million + $35million + $90 million = $150 million.

Rahul Sunny answered 1 year ago

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