Saved Hwk 4 (ch. 7): Opens 2n4. Due 221 0 Suppose a gold miner finds a gold nugg

Question

Saved Hwk 4 (ch. 7): Opens 2n4. Due 221 0 Suppose a gold miner finds a gold nugget and sells the nugget to a mining company for $400. The mining company melts down the gold, purifies nt, and sells t to a jewelry maker for $900. The jewelry maker fashions the gold into a necklace that it sells to a department store for $1.300. Finally, the department store sells the necklace to a customer for $1700 Instructions: Round your answer to the nearest dollar As a result of these transactions, GDP increases by points eBook References

Explanation / Answer

Solution: Only the market value of the final goods and service count in GDP as including the earlier trannsctions counts the gold multiple times. Thus, GDP has increased by $1700, the price of the final necklace produced. importantly, GDP has not increased by $400+$900+$1300+$1700 = $4300. Couning the price at each intermediate,step serves to double - ( or triple or quadruple) count the production. If one choe to use the value added by miner; $400 is added by the mining company ( $900 - $400); $400 is added by the jewelry maker ($1300- $900); and the $400 is added by retailer ( $1700 - $ 1300 ) . Total value added is $500 + $400 + $400 + $400 = $1700 the same as in the final goods method

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