Question

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process:

Name of Company Revenues Cost Of Purchased Inputs
Fulton Family Farm $2 $0
DeLux Popcorn Co. Revenues $ 5 $2
Friendly Groceries Revenues $ 6.5 $5

Suppose the corn was grown on the farm and sold in 2000 while the jar of popcorn was produced by the De Lux Popcorn Co. in the year 2001. The jar of popcorn was sold to Friendly Groceries, which puts the jar on its shelves for purchase at $6.50 all in 2002, but the jar is not sold to a customer until the year 2003. What is the contribution of these transactions to GDP in the years 2000 and 2001 respectively?
a. $0.50
b. $1.50
c. $2.00
d. $2.50

Answer 1

In 2000, Fulton Family Farm's $2 revenue from selling corn with no intermediate costs contributed $2 to the GDP. In 2001, DeLux Popcorn Co. sold popcorn for $5, which cost $2 to make (purchased from Fulton Family Farm), contributing $3 to the GDP. The correct answer is c. $2.00.

Step-by-step explanation:

The contribution of these transactions to Gross Domestic Product (GDP) in the years 2000 and 2001 can be determined by looking at the value of the goods produced each year. GDP measures the market value of all final goods and services produced within a country in a given period.

In the year 2000, Fulton Family Farm produced corn and sold it, which would directly add to the GDP of 2000. The revenue from the farm was $2, and since there were no intermediate goods (cost of purchased inputs) from their own production, the entire $2 was added to the GDP of 2000.

In 2001, DeLux Popcorn Co. took the corn bought for $2 and produced popcorn, selling it for $5. Thus, DeLux Popcorn Co. contributed the value added by their production to the GDP of 2001. The value added is calculated by subtracting the cost of purchased inputs ($2) from their revenues ($5), which equals $3. Therefore, $3 is the contribution to the GDP of 2001.

The correct option for the asked question about the contribution to the GDP in the years 2000 and 2001, respectively is: c. $2.00