[ECON-E 202] - Midterm Exam Guide - Ultimate 26 pages long Study Guide!
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Measuring value of production in a country. Only final goods are used to eliminate double counting of intermediate goods. Don"t overestimate the value of the final goods by including intermediate goods. Intermediate goods are sold to firms and then bundled or processed with other goods or services for sale at a later stage. Final goods are the finished goods sold to final users and then consumed or held in personal inventories. A good must be produced and not just represent a claim on ownership, such as stocks and bonds. Only goods and services produced for the market place are included. A time is specified - in a given year. Gdp is a flow variable: flow variable - counting from one point to another. Gdp measures only final goods and services produced within a nation"s boarders. Another way to understand gdp is to study its components and how they fit together.
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Intermediate goods are goods and services that are purchased for resale or for further processing or manufacturing. Final goods are consumer goods, capital goods, and services that are purchased by their final users, rather than for resale or for further processing or manufacturing. Including the value of intermediate goods in the measure of real GDP would amount to multiple counting, and therefore distort the value of GDP. Value added is the market value of a firm’s output less the value of the inputs the firm has bought from others.
Using the table below, calculate the total sales values, value-added, and fill in the missing boxes. The product is assembled for sale is a fancy wool suit.
Stages of Production | Sales Value of Materials or Product | Value Added |
$0 | ||
Firm A: Sheep Ranch | $120 | |
Firm B: Wool Processor | $180 | |
Firm C: Suit Manufacturer | $220 | |
Firm D: Clothing Wholesaler | $50 | |
Firm E: Retail Clothier (Market) | $80 | |
Total Sales Value | ||
Total Value Added |