ECON 102 Chapter Notes -Capital Good, Street Sweeper, Unemployment Benefits

43 views6 pages

periwinkledeer44

11 Feb 2013

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

jc123 and 40170 others unlocked

ECON 102 Full Course Notes

Verified Note

64 documents

Document Summary

Production occurs in stages: some firms produce outputs that are used as inputs by other firms, and these other firms, in turn, produce outputs that are used as inputs by yet other firms. Wrong to just add up the market values of all outputs total would be in excess of the value of the economy"s actual output. Intermediate goods outputs that are used as inputs by other producers in a further stage of production. Final goods goods that are sold for consumption, investment, government or exports. Value added amount of value that firms and workers add to their products over and above the costs of intermediate goods. Value added = revenue cost of intermediate goods. Payments made to factors of production (wages to workers or profits to owners) are not purchases. Firm"s revenue = cost of intermediate goods + payments to factors of production. Therefore value added = payments to factors of production.

Related Questions

The table below shows the price of inputs and the price of outputs at each step in the production process of making a shirt. Assume that each of these steps takes place within the country.

	Cotton farmer	Fabric maker	Sewing and printing
Inputs	$0	$1.10	$3.50
Value of output	$1.10	$3.50	$18.00

a. Using the standard expenditure method, the total contribution of this shirt to GDP is $_____.

b. If we use a value-added method (i.e., summing the value-added by producers at each step of the production process, equal to the price of inputs minus the price of outputs), the contribution of this shirt to GDP is $_____.

c. If we mistakenly added the price of both intermediate and final outputs without adjusting for value-added, we would find that this shirt contributes $_____ to GDP and this overestimates the true contribution by $_____.

Intermediate goods are goods and services that are purchased for resale or for further processing or manufacturing. Final goods are consumer goods, capital goods, and services that are purchased by their final users, rather than for resale or for further processing or manufacturing. Including the value of intermediate goods in the measure of real GDP would amount to multiple counting, and therefore distort the value of GDP. Value added is the market value of a firm’s output less the value of the inputs the firm has bought from others.

Using the table below, calculate the total sales values, value-added, and fill in the missing boxes. The product is assembled for sale is a fancy wool suit.

Stages of Production	Sales Value of Materials or Product	Value Added
	$0
Firm A: Sheep Ranch		$120
Firm B: Wool Processor	$180
Firm C: Suit Manufacturer	$220
Firm D: Clothing Wholesaler		$50
Firm E: Retail Clothier (Market)		$80
Total Sales Value
Total Value Added

amethysttrout886

Inventories are part of an investment and therefore included in GDP because
A. inventories represent the amount of factors of production firms have used to produce goods.
B. the sale of shares of stock are not included in any other component, inventories allow GDP to capture this spending.
C. the value added by production goes into goods but not production and since goods start in inventory, that component needs to be computed.
D. firms produce goods, however, sometimes the goods may be unsold at the time GDP is computed.

cerisecoyote781

ECON 102 Chapter Notes -Capital Good, Street Sweeper, Unemployment Benefits

ECON 102 Full Course Notes

Document Summary

Get access

Related Documents

ECON 102 Quiz: Chapter 20 Summary

ECON 102 Lecture Notes - Black Market, Disposable And Discretionary Income, Thrice

ECON 102 Chapter Notes - Chapter 20: Municipal Bus Company, Canada Pension Plan, Indirect Tax

Related Questions