Answer:
$57,000
Explanation:
The calculation for GDP only takes into account the final, market value, of finished goods and services. The value of intermediate goods (those that are transformed into other goods during the year) is not taken into account.
In this case, we have 20 couches that were finished and sold for $2,600. They are part of GDP under their market value. Their total contribution to GDP is:
20 couches x $2,600 = $52,000
Cowhide, Inc. produced 25 units of leather, each worth $1,000. 20 of them were bought by Couches, Inc. and transformed into couches. As a result, those 20 units are not counted on GDP.
The remaining 5 units of leather are part of GDP because they are finished goods which have not been transformed into anythign else. Even if Couches, Inc. has promised to buy those 5 units of leather, it would only do so in 2016, and a promise is not necessarily a certainty.
The contribution of the 5 units of leather to GDP is:
5 units of leather x $1,000 = $5,000
Finally, we add up the two figures to obtain total GDP:
GDP = $52,000 + $5,000
= $57,000
