Question

Consider the given simple economy. Sheepnip Co. makes sheep feed. Better-bald Inc. purchases sheep feed for the sheep it raises and sells wool. Sweeter Sweaters Inc. makes and sells wool sweaters. Sheepnip Co. Better-bald Inc. Sweeter Sweaters Inc. Sheep feed $0 $2200 $0 Wool $0 $0 $3800 Wages $700 $300 $550 Interest payments $400 $100 $50 Rent $1000 $450 $500 Profits $100 $750 $800 What is the total payments (income) to factors of Better-bald Inc.? $ What is the total payments (income) to factors of Sweeter Sweaters Inc.? $ What is the GDP for this economy?

Answer 1

Answer:

Explanation:

1. What is the total payments (income) to factors of Better-bald Inc.?

Payments to factors of Better-bald Inc. = Rent+Wages+Interest payment+Profits = 450+300+100+750 = $1600

2. What is the total payments (income) to factors of Sweeter Sweaters Inc.?

Payments to factors of Sweeter Sweater Inc = Rent+Wages+Interest payment+Profits = 500+550+50+800 = $1900

3. If we use income method to calculate GDP, we need to sum the payment to factor of production by the entreprises in the economy who employ the factor of production.

The given economy has three enterprises: Better-bald, Sweater Sweaters, Sheepnip. Payment to factor of production are already calculated for 2 of them. Therefore, we there is a need to calculate for the Sheeping Co.

Payment to factors by Sheeping Co = 700 + 400 + 1000 + 100 = $2200

So GDP = $1600 + $1900 + $2200 = $5700