Question

a. Consider an economy which produces and sells, among a host of other things, 100 million T-shirts a year. The average T-shirt begins life when a farmer plants seeds she put away last year, waters them, and harvests the cotton, then sells the cotton to a mill for $0.75, which sells the fabric to a T-shirt factory for $1.50, which sells its T-shirts to a wholesaler for $5, who sells it to Nordstrom for $10, which finally sells it to you for $17. Determine the impact of T-shirts on annual GDP by calculating the value added of the entire production process. Value added: $ billion b. Now, calculate the amount spent on T-shirts in a year if 100 million T-shirts are sold, each for $17. How does this compare to the amount calculated through the value-added method? Total spending: $ billion

Answer 1

Page No.: VOUVA Date: So value added by mill -($1.50 - $0.75 per t-shirt = $0.75 per t-shirt. For T- Shirt factory fabsic becomes the input and T-shirt becomes the output So value added by i T- shirt factory = ($5-$1.50) per t shirt = $3-5 per t-shirt. For wholesaler, the T-shirt from the factory is its input and the T-shirt it sells to Nordstrom is its output.. Value added by wholesaler -($10-$5) bee t-shirt C = $5 per t-shirt o For Nordstrom, T-shirt from wholesaler becomes input and the T-Shirt sold to customers is its output. value added - ($17- $10 per t shirt by Nordstrom $7 pei t-shirt. Hence total value added per t-shirt = 0.75 +0.75 +3.5+5+7 = $17

Date: Total value added for 100 million T-shirts - (100x100) x 17 = $1700 x 106 = $1.7 billion So correct answer is, value added $11.7 billion. 6) Amount Spent on T-Shirts = No. of T Shirts & price = 100 x 100 x $ 17 = 1700 x 10 = $ 1.7 billion so correct ansuun is, Total spending: $(1.7 l billion.