Question

In: Economics

Bread Cheese Pizza Costs of Input $0 $0 $50 bread $35 cheese Wages $15 $20 $75...

Bread Cheese Pizza
Costs of Input $0 $0

$50 bread

$35 cheese
Wages $15 $20 $75
Value of Output $50 $35 $200

Question 24. Calculate GDP the following three ways (note there is a missing line in the above chart):

A. As value added

B. As spending on final goods and services

C. As factor income (the companies have no rent or interest payments)

Solutions

Expert Solution


(A) As Value Added -

Value added by bread = Value of output - Cost of input = $50 - $0 = $50

Value added by cheese = Value of output - Cost of input = $35 - $0 = $35

Value added by pizza = Value of output - Cost of input = $200 - $85 = $115

Calculate GDP -

GDP = Value added by bread + Value added by cheese + Value added by pizza

GDP = $50 + $35 + $115 = $200

So,

The GDP as value added is $200.

(B) As spending on final goods and services

The final good is pizza. The pizza is sold for $200.

So,

The GDP as spending on final goods and services is $200.

(c) As factor income

Total wages = $15 + $20 + $75 = $110

Profit from bread = Value of output - Cost of input - Wages = $50 - $0 - $15 = $35

Profit from cheese = Value of output - Cost of input - Wages = $35 - $0 - $20 = $15

Profit from pizza = Value of output - Cost of input - Wages = $200 - $85 - $75 = $40

Total profit = $35 + $15 + $40 = $90

GDP = Total wages + Total profit = $110 + $90 = $200

So,

The GDP as factor income is $200.

Rahul Sunny answered 1 year ago
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