Question

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is

Answer 1

Answer:

When using the expenditure approach to calculate GDP we only use the price of the final good so in this case the total contribution to GDP will be $1200

Using the income approach we calculate the profit made by each party so Arthur made $100, Bob made $200(300-100), Camille make $400(700-300) and Donita made $500(1200-700)= 100+200+400+500 = $1200

Explanation: