A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers eat the bread. a. What is GDP in this economy? Explain. b. Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those described above, calculate the value added of each of the three producers. c. What is total value added of the three producers in this economy? How does it compare to the economy’s GDP? Does this example suggest another way of calculating GDP?

Question

A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she

sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers

eat the bread.

a. What is GDP in this economy? Explain.

b. Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those described above, calculate the value added of each of

the three producers.

c. What is total value added of the three producers in this economy? How does it compare to the economy’s GDP? Does this example suggest another way of calculating GDP?

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