EC140 Chapter Notes - Chapter 20.1-20.2: Retained Earnings, Investment Goods

• School: WLU
• Department: Economics
• Course: EC140
• Professor: Shadab Qaiser

Document Summary

Hard to fi(cid:374)d a total for the (cid:374)atio(cid:374)"s output (cid:271)e(cid:272)ause so(cid:373)eti(cid:373)es a (cid:272)o(cid:373)pa(cid:374)(cid:455)"s output is a(cid:374)other"s i(cid:374)put. Simply adding the market value of all outputs would be an over exaggeration/excess of the actual value. Double/multiple counting: error that arises (cid:449)he(cid:374) esti(cid:373)ati(cid:374)g a (cid:374)atio(cid:374)"s output (cid:271)(cid:455) adding all sales of all firms: a(cid:448)oid dou(cid:271)le (cid:272)ou(cid:374)ti(cid:374)g through (cid:272)o(cid:374)(cid:272)ept of (cid:862)(cid:448)alue added(cid:863) Value added: the (cid:448)alue of a fir(cid:373)"s output - the value of the inputs that it purchases from other firms: value added = sales revenue - cost of intermediate goods. = pa(cid:455)(cid:373)e(cid:374)ts o(cid:449)ed to the fir(cid:373)"s fa(cid:272)tors of produ(cid:272)tio(cid:374: cost of i(cid:374)ter(cid:373)ediate goods (cid:894)fro(cid:373) other fir(cid:373)s(cid:895), so it does(cid:374)"t i(cid:374)(cid:272)lude thi(cid:374)gs like wages paid to employees, the fir(cid:373)"s (cid:448)alue added is the (cid:374)et (cid:448)alue of its output. Intermediate goods: all outputs that are used as inputs by other producers in a further stage of production: outputs of firms that are used as inputs by other firms.