Chapter 26, Problem 5TPS

Sub part (a):

To determine

GDP of Robinson Crusoe economy without the wisdom and local knowledge, and the consumption and investment expenditures.

Answer to Problem 5TPS

GDP of the economy is 4,400 pounds. The consumption is 4,000 pounds and the investment is 400 pounds.

Explanation of Solution

The sum value of all the goods and services produced in the economy within the financial year is the GDP of the economy. It is given that the consumption is 2,000 fish that cost 1 pound each, 4,000 coconuts that value 0.5 pound each, and 2 houses that cost 200 pounds each. Thus, the summation of all the values gives the total GDP of the economy as follows:

$\begin{array}{c}\text{GDP of the economy}=\left[\begin{array}{l}\left({\text{quantity}}_{\text{fish}}\times {\text{Price}}_{\text{fish}}\right)+\left({\text{quantity}}_{\text{Coconut}}\times {\text{Price}}_{\text{Coconut}}\right)\\ +\left({\text{quantity}}_{\text{hut}}\times {\text{Price}}_{\text{hut}}\right)\end{array}\right]\\ =\left[\left(2,000\times 1\right)+\left(4,000\times 0.5\right)+\left(2\times 200\right)\right]\\ =2,000+2,000+400\\ =4,400\end{array}$

Thus, the total GDP of the economy is 4,400 pounds. Since the consumption is fish and coconuts, their value will become the consumption expenditure that equal 4,000 pounds. Hut is an investment, and its value is the investment expenditure, which equals 400 pounds.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The gross domestic product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (b):

To determine

GDP of Robinson Crusoe economy trade with neighbors and the consumption, investment and net export of the economy.

Answer to Problem 5TPS

The GDP of the economy is 4,400 pounds. The consumption is 5,500 pounds, the investment is 400 pounds, and the net exports is -1,500 pounds.

Explanation of Solution

The sum value of all the goods and services produced in the economy within the financial year is the GDP of the economy. It is given that the production is 2,000 fish that cost 1 pound each, 4,000 coconuts that value 0.5 pound each and 2 houses that cost 200 pounds each. He sells 500 fish for 10,000 clans to the tribes. Thus, the summation of all the values gives the total GDP of the economy as follows:

$\begin{array}{c}\text{GDP of the economy}=\text{C}+\text{I}+\text{X}\\ =\left[\begin{array}{l}\left[\left({\text{Quantity}}_{\text{fish}}\times {\text{Price}}_{\text{fish}}\right)+\left({\text{Quantity}}_{\text{Coconut}}\times {\text{Price}}_{\text{Coconut}}\right)+\left(\frac{{\text{quantity}}_{\text{clam}}}{{\text{Price}}_{\text{clam}}}\right)\right]\\ +\left({\text{Quantity}}_{\text{hut}}\times {\text{Price}}_{\text{hut}}\right)+\left({\text{Value}}_{\text{exports}}-{\text{Value}}_{\text{Imports}}\right)\end{array}\right]\\ =\left[\left(1,500\times 1\right)+\left(4,000\times 0.5\right)+\left(\frac{10,000}{5}\right)\right]+\left(2\times 200\right)+\left(500-2,000\right)\\ =1,500+2,000+2,000+400+\left(-1500\right)\\ =5,900-1,500\\ =4,400\end{array}$

Thus, the total GDP of the economy is 4,400 pounds. Since the consumption is fish, coconuts and clams, their value will become as the consumption expenditure, which equals 5,500 pounds. Hut is an investment, and its value is the investment expenditure, which equals 400 pounds. The net exports is the value of imports subtracted from exports, which equals 1,500 pounds.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The gross domestic product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (c):

To determine

Calculate the GDP.

Answer to Problem 5TPS

The GDP of the economy is 4,400 pounds. The consumption is 4,000 pounds and the investment is 0 pounds.

Explanation of Solution

The sum value of all the goods and services produced in the economy within the financial year is the GDP of the economy. It is given that the consumption is 2,000 fish that cost 1 pound each, 4,000 coconuts that value 0.5 pound each and 2 houses that cost 200 pounds each. Thus, the summation of all the values gives the total GDP of the economy as follows:

$\begin{array}{c}\text{GDP of The economy}=\left[\begin{array}{l}\left({\text{quantity}}_{\text{fish}}\times {\text{Price}}_{\text{fish}}\right)+\left({\text{quantity}}_{\text{Coconut}}\times {\text{Price}}_{\text{Coconut}}\right)\\ +\left({\text{quantity}}_{\text{hut}}\times {\text{Price}}_{\text{hut}}\right)\end{array}\right]\\ =\left[\left(2,000\times 1\right)+\left(4,000\times 0.5\right)+\left(2\times 200\right)\right]\\ =2,000+2,000+400\\ =4,400\end{array}$

Thus, the total GDP of the economy is 4,400 pounds. Since the consumption is fish and coconuts, their value will become as the consumption expenditure, which equals 4,000 pounds. Hut is an investment and its value is the investment expenditure, which equals 400 pounds but since they are stolen and nothing is provided to him, the investment becomes zero.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The gross domestic product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (d):

To determine

GDP of Robinson Crusoe economy with imports but no exports and the consumption, investment expenditures and net exports.

Answer to Problem 5TPS

The GDP of the economy is 4,400 pounds. The consumption is 4,007 pounds and the investment is 400 pounds, whereas the net exports is -7 pounds.

Explanation of Solution

The sum value of all the goods and services produced in the economy within the financial year is the GDP of the economy. It is given that the consumption is 2,000 fish that cost 1 pound each, 4,000 coconuts that value 0.5 pound each, and 2 houses that cost 200 pounds each. Thus, the summation of all the values gives the total GDP of the economy as follows:

$\begin{array}{c}\text{GDP of The economy}=\left[\begin{array}{l}\left({\text{quantity}}_{\text{fish}}\times {\text{Price}}_{\text{fish}}\right)+\left({\text{quantity}}_{\text{Coconut}}\times {\text{Price}}_{\text{Coconut}}\right)\\ +\left({\text{quantity}}_{\text{hut}}\times {\text{Price}}_{\text{hut}}\right)\end{array}\right]\\ =\left[\left(2,000\times 1\right)+\left(4,000\times 0.5\right)+\left(2\times 200\right)\right]\\ =2,000+2,000+400\\ =4,400\end{array}$

Thus, the total GDP of the economy is 4,400 pounds. Since the consumption is fish, coconuts, magazines, watch and shirt, their value will become as the consumption expenditure, which equals 4,007 pounds. Hut is an investment, and its value is the investment expenditure, which equals 400 pounds. Since the export value is zero and the value of the import items is 7 pounds, the net export will be -7 pounds.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The gross domestic product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (e):

To determine

Whether Crusoe is happy or unhappy in part (c) and in part (d).

Explanation of Solution

When the economy exports something but does not receive anything back, the producer will be unhappy. In the case of the sub part (c), he exports two huts but receives nothing in return which makes him unhappy. Whereas in the case of the sub part (d), he exports nothing but receives some imported goods at free of cost. This increases his consumption. Thus, the consumer is happy at sub part (d).

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The gross domestic product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.