Question

This problem is about value in a 5 stage production process for high-end wool coats. A big sheep ranch in Montana makes its business selling wool. They sell it to a processor for 100 a unit. The processing company in Idaho in turn sells the wool to a textile shop in Georgia that makes the shirts for 135 a unit. Step 3 is a clothing wholesaler in TX buys the coats from the textile shop at 200 a unit. Next, the wholesaler sells the coats to retail units at 250 a unit. Finally, The retaller sells the coats at locations around the country and online for 300 a unit. On a piece of paper or file, create a table to organize the value chain of making the wool coats showing the stage of production, sales value of material or product, and lastly the value added. What is the total Sales Values? What is the Value Added (total income)? If there are 2000 units sold at the retail level, what is the effect on GDP in the economy?

Answer 1

A table demonstrates the value chain for high-end wool coats with a total Sales Value of $300 per unit and a total Value Added of $300 per unit. When 2000 units are sold at the retail level, the contribution to GDP is $600,000.

Step-by-step explanation:

Understanding the Value Chain and Its Impact on GDP

To understand the value chain for high-end wool coats, we can lay out each stage of production and its associated value. Here's a table illustrating this process:

Sheep Ranch: Sales Value - $100/unit, Value Added - $100/unit

Processing Company: Sales Value - $135/unit, Value Added - $35/unit

Textile Shop: Sales Value - $200/unit, Value Added - $65/unit

Clothing Wholesaler: Sales Value - $250/unit, Value Added - $50/unit

Retailer: Sales Value - $300/unit, Value Added - $50/unit

The total Sales Values are the sales values at each stage of production when the product is sold to the next stage. The Value Added at each stage is the increase in value of the product from the purchase price to the selling price.

The total Sales Value for one unit at the end stage (retailer) is $300. The total Value Added, which equates to total income, is the sum of value added at each stage, which for one unit is: $100 + $35 + $65 + $50 + $50 = $300.

If there are 2000 units sold at the retail level, the effect on GDP in the economy would be 2000 units × $300/unit = $600,000.