Question

Suppose that furniture production encompasses the following stages:Stage 1: Trees sold to lumber company S 800Stage 2 Lumber sold to furniture company $1,500Stage 3: Furniture company sells furniture to retail store $2,800Stage 4: Furniture store sells furniture to consumer $5,400(a) What is the value added at each stage?Stage 1: -___-_Stage 2 _-__-_Stage 3: _-__-_Stage 4: __-___(b) How much does this output contribute to GDP?(c) How would answer (b) change if the lumber were imported from Canada?

Answer 1

Answer:

a) stage 1- $800 Stage 2- $700 Stage 3- $1,300 Stage 4- $2,600

b) $5,400

c) The $5,400 reduces by $800 to $4,600

Explanation:

The question is divided into 3

Part a) Determine the value added at each stage of the transaction as follows

Stage 1 - Value of the transaction is $800, therefore, the value added is $800

Stage2 - The value of the transaction is $1500, value added $1,500-$800= $700

Stage 3- The value of the transaction is $2,800, value added $2,800-$1,500= $1,300

Stage 4- The value of the transaction is $5,400, value added $5,400-$2,800= $2,600

Finally, the total value of transaction is $10,500 but the value added is $5,400

Part b) Determine the contribution of Furniture Production to GDP

This is the sum of the added value as determined above

= $800 + $700+ $1300 + 2600 = $5,400

Part c) How B changes if lumber were imported from Canada

The effect is that the first stage of the production can no longer be factored into GDP calculation in the United States

Therefore, The New GDP contribution for the Furniture Production

= $5,400 - $800 = $4,600