Question

A Toronto shoe manufacturer makes $250,000 in shoes from $100,000 in leather produced this year on an Alberta ranch, $50,000 in glue from a New York Company, and $60,000 in nails produced last year by an Ontario steel mill. The shoe manufacturer sells $23,000 of these shoes this year. The contribution to the Canadian GDP is?

Answer 1

The value added can be calculated as follows:

Value Added = Final Sale Price - Cost of Inputs

Final Sale Price = $23,000

Cost of Inputs = $100,000 (leather) + $50,000 (glue) + $60,000 (nails)

Cost of Inputs = $210,000

Value Added = $23,000 - $210,000

Value Added = -$187,000

The negative value for the value added suggests that the shoe manufacturer experienced a loss. However, for the purpose of calculating the contribution to GDP, we consider the value added as zero since there was no positive gain in value from the production process.

Therefore, the contribution to the Canadian GDP in this case is zero.