Why do economists worry about “multiple counting” and calculate only the “value added” in the production process?
What will be an ideal response?
Only the value of final goods is included in the calculation of GDP because that value includes the value of the production of all intermediate goods. To include the value of final goods and all intermediate goods would lead to a multiple counting or overstatement of the size of GDP.
To make the GDP calculation, economists only count the “value added” at each stage of the production process. Value added is the market value of a firm’s output minus the value of inputs bought from other firms. Summing the value of the contribution made by each firm at each stage of the production process enables economists to determine GDP.
You might also like to view...
Which of the following statements is FALSE?
A. Included in the firm's short-run production function are both fixed and variable inputs. B. An efficient firm can obtain more output than the production function shows. C. The production function shows the technical relationship between a firm's inputs and outputs. D. The production function presents the technically efficient methods of combining inputs to produce output.
In a persisting demand-pull inflation
A) aggregate demand increases and potential GDP decreases. B) aggregate demand decreases and aggregate supply decreases. C) aggregate supply decreases and aggregate demand increases. D) aggregate supply increases and aggregate demand increases. E) None of the above answers is correct.
Given the scenario described, if the market price of hammers was $10, then:
Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot can offer their hammer for a minimum of $7. Lace Hardware can offer the hammer for a minimum of $10. Bob's Hardware store can offer the hammer at a minimum price of $13. A. only House Depot would gain surplus by supplying hammers to the market. B. only House Depot and Lace Hardware would gain surplus by supplying hammers to the market. C. House Depot, Lace Hardware, and Bob's Hardware would all supply hammers to the market, but Bob's would lose surplus. D. only House Depot and Bob's Hardware would supply hammers to the market.
Limits to self-interested payoff maximization that have been studied by behavioral economists include
a. limited cognitive ability. b. limited willpower. c. limits to self interest. d. all of the above.