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ECON 295 Chapter Notes - Chapter 20: Retained Earnings, British Association For Immediate Care, Black Market

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fuchsiagnu85
12 Apr 2017
School
McGill University
Department
Economics
Course
ECON 295
Professor
Mayssun El- Attar Vilalta

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Document Summary

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. That error that would arise in estimating the nation"s output by adding all sales of all firms is called double counting multiple counting. The same output would be counted every time that it was sold by one firm to another. Need to distinguish between two types of output. Intermediate goods: all outputs that are used as inputs by other producers in a further stage of production. Final goods: goods that are not used as inputs by other firms but are produced to be sold for consumption, investment, government, or exports during the period under consideration. Value added: the value of a firm"s output minus the value of the inputs that it purchases from other firms.

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Related Questions

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    

 

 

Inventories are part of an investment and therefore included in GDP because
A. inventories represent the amount of factors of production firms have used to produce goods.
B. the sale of shares of stock are not included in any other​ component, inventories allow GDP to capture this spending.
C. the value added by production goes into goods but not production and since goods start in​ inventory, that component needs to be computed.
D. firms produce​ goods, however, sometimes the goods may be unsold at the time GDP is computed.

What is the market for factors of production?

  1. What is the market for factors of production?

    1. The market for factors of production is where households and firms interact to trade factors of production for factor payments. For example this is where people provide firms with labor and firms pay them with wages. 

  2. What is the money market?

    1. The money market is where households, firms, and the government may save and/or invest their money to earn interests. Money market includes banks, stock market, bonds market, and other financial institutions where economic actors can buy and sell financial assets to earn interests and/or dividends.

  3. Who are the three economic actors in the circular flow model?

    1. In a circular flow model, the three main economic actors are the households, firms, and the government. Households include the typical individual consumers. Firms include businesses and similar producers in the economy. Finally, the government refers to the whole government system from federal to local level.

  4. How is the national income of an economy determined?

    1. The national income of an economy is determined by measuring the total value of the output produced in an economy or the total income earned by the actors in the economy. In a circular flow model, we can see that the value of total output produced should equal the total value of income generated and earned in the economy. This is because every dollar spent by someone in the economy is received by another person in the economy as income.

  5. What is GDP?

    1. The gross domestic product or GDP represents the sum total of the value of the final goods and services produced within the economy for a given year. It is the most commonly used measure of its economy’s productivity and income.