Ec0 102 Principles Of Macroeconomics Question on Output method :Find GDP
GDP CALCULATIONS
A tree is cut from the forest and sold to a mill as timber for
GHS 500. The mill cuts the timber into lumber and sells it
to a furniture company for GHS 800. The furniture
company makes a chair out of the lumber and sells it to a
retailer for GHS 1,500. The retailer sells the chair to a
consumer for GHS 2000. Compute the GDP at the market price
using the value-added approach.
SOLUTION
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The GDP at a market price using the value-added approach is calculated by adding the value added at each stage of production.
Value added at the mill = GHS 800 - GHS 500 = GHS 300
Value added at the furniture company = GHS 1,500 - GHS 800 = GHS 700
Value added at the retailer = GHS 2,000 - GHS 1,500 = GHS 500
Therefore, the GDP at a market price using the value-added approach is:
GHS 500 (initial sale of timber) + GHS 300 (value added at the mill) + GHS 700 (value added at furniture company) + GHS 500 (value added at retailer) = GHS 2,000.
So, the GDP at a market price using the value-added approach is GHS 2,000.
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