ECON 295 Chapter 20: Chapter 20 notes.docx
9 Jan 2015
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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. 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. Value added = revenue cost of intermediate goods. Value added = payments to factors of production (such as wages paid to workers or profits paid to owners) Value added is the correct measure of each firm"s contribution to total output the amount of market value that is produced by that firm.
