Question

A farmer grows wheat, which she sells to a miller for $70. The miller turns the wheat into flour, which she sells to a baker for $120. The baker turns the wheat into bread, which she sells to consumers for $135. Consumers eat the bread. Assume that these transactions account for all economic activity in this economy. GDP in this economy is.
Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those previously described, complete the following table by calculating the value added for each of the three producers. Then enter the total value added in the final row.

Producer Value Added
(Dollars)
Farmer
Miller
Baker
Total

The total value added for the three producers in this economy does not equal the economy’s GDP.
a. True
b. False

Answer 1

Answer:

a. GDP in this economy is $135.

b. Producer     Value Added

                            (Dollars)

Farmer                     70

Miller                        50

Baker                        15

Total                   $135

c. The total value added for the three producers in this economy does not equal the economy’s GDP.

b. False

Explanation:

Ordinarily, Gross Domestic Product (GDP) is the economic measure of the total value of all the finished goods and services produced within a country's borders in a specific time period, usually a year.  Broadly, it comprises the totality of private consumption, fixed investment, change in inventories, government consumption, and net exports.  On the other hand, value added can be defined as the economic profit made from a business activity.