Question

Mother Nature 2750 0 Tlaloc 7750 2750 Bob 20000 0 0 7750 3700 10000 Value of sales ($) Dirt ($) Bricks ($) Wages ($) Interest payments ($) Rent ($) Profits ($) Total expenditure ($) 1000 1000 900 500 600 300 400 7750 250 2750 700 650 20000 Mother Nature produces dirt, Tlaloc turns the dirt into brick, and Bob creates brick houses. The economy is characterized by the table. Note all figures are measured in dollars. What is the value added for Mother Nature? What is the value added for Tlaloc? What is the value added for Bob?

Answer 1

The formula for value added is: Value Added=Gross value of output -Value of inermediate consumption Income method: NDPc = National Income Rent + Wages + Interest + Profit + Mixed Income Mother Nature produces dirt; thus, dirt is a final good for Mother Nature. Therefore, the value added for Mother Nature is: Value Added = Gross value of output - Value of inermediate consumption = 2750 -0 = 2750 Tlaloc turns the dirt into brick, thus, dirt is a intermediate consumption of Tlaloc. Therefore, value added for Tlaloc is: Value Added = Gross value of output - Value of inermediate consumption = 7750-2750 = 5000 Bob creates brick houses, thus, brick are the intermediate consumption for Bob. Therefore, the value added of bob is:

Value Added = Gross value of output -Value of inermediate consumption = 20000 – 7750 = 12.250