[10 marks] Readmania produces books. The sales of Readmania last year (2017) wer

Question

[10 marks] Readmania produces books. The sales of Readmania last year (2017) were $23million. To produce the books Readmania purchases the text from 6 authors- each author was paid $0.5million for their intellectual property on the text. Paper was purchased from Flatpulp for $6.5million. Glue and cardboard was purchased from Bindersplus at a cost of $0.3million and the services of a Printing Agent to print all the copies was hired at a cost of $7million. All of these firms are located in Australia, the inputs were all produced in 2017 and none of these firms purchases intermediate goods. 1. Using the value added/production approach to calculating GDP- explain how much Readmania contributed to GDP in 2017. a.

Explanation / Answer

Answer 1

In order to calculate how much Readmania's contribution to GDP in 2017 We have to Find Total Value Added by Readmania

Value Added by Readmania = Sales - Intermediate consumption

Here intermediates are paymen to 6 authors( = 0.5 million*6) + Cost of paper(6.5 million ) + Glue and Cardboard cost(= 0.3 million) + cost of Agent services(= 7 million)

Hence Total intermediate consumption = 3 + 6.5 + 0.3 + 7 = 16.8 million

Sales = 23 million

Hence value added by Readmania = 23 million - 16.8 million = $6.2 million

Hence Readmania constributed $6.2 million to GDP in 2017

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