Question

A farmer grows a bushel of wheat and sells it to a miller for $1. The miller turns the wheat into flour and then sells the flour to a baker for $3. The baker uses the flour to make bread and sells the bread to an engineer for $6. The engineer eats the bread. What is the value added by each person? What is the bread's contribution to gdp?

Answer 1

Answer: $Value added by farmer = 1 Value added by miller = 2 Value added by the baker = 3$

GDP contribution is $6.

Explanation: GDP refers to the market value of final goods and services produced withing the national territory of a country.

Using the value added method, we can calculate GDP by summing up the value added at each level of production.

$Value added by farmer = 1 Value added by miller = 3 - 1 = 2 Value added by the baker = 6 - 3 = 3$

$GDP = Value added by the farmer +Value added by the miller + Value added by the baker = 1 + 2 + 3 = 6$

Or

Using the expenditure approach, GDP is the market value of the final good sold to the customer.

GDP = Cost of bread to the engineer = $6