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