Question

Larson has started a wine-making business and he buys all his ingredients from his neighbor Bob, who happens to own his own farm and manufactures bottles in his spare time. Larson purchases $4,000 worth of ingredients and bottles from Bob to produce 2,000 bottles of wine. Larson sold all 2,000 bottles of wine to an upscale restaurant for $10 each. The restaurant sold all the wine to customers for $45 a bottle. The restaurant pays $20,000 in wages. Please note that both Larson and his neighbor Bob own their business so no wages are paid to Larson and Bob as their business profits serve as their capital income. Please also note that while there is no government expenditure, Bob still pays $1,000 in taxes, Larson pays $2,500 in taxes, and the restaurant pays $3,000 in taxes. Calculate the dollar value of consumption using expenditure, investment, government spending, value of exports, Calculate the dollar value of imports using the expenditure approach, Calculate the dollar value of total labor income using the income approach, Calculate the dollar value of capital income for the restaurant using the income approach, Calculate the dollar value of capital income for Larson using the income approach, Calculate the dollar value of capital income for Bob using the income approach, 000 in taxes, Larson pays $2,500 in taxes, and the restaurant pays $3,000 in taxes. Calculate the dollar value of total government income using the income approach, Calculate the dollar value of depreciation using the income approach, Calculate the value-added of the restaurant using the value-added approach, Calculate the value-added of Larson using the value-added approach, Calculate the value-added of Bob using the value-added approach.

Answer 1

(1) Value Added of the Restaurant= Sales - Cost - Indirect Taxes

= ($45x2000)-$20000-$3000

= 90000-20000-3000

= $670000

Value Added of the Larson= ($10x2000)-$4000-$2500

= 20000-4000-2500

=$13500

Value Added of the Bob= $4000-$1000 = $3000

Total Government Income= Sum of Taxes as no expenditure is given

= 1000+2500+3000

= $6500

Dollar value of capital income for Larson=Profit - Indirect Taxes

= $16000-2500

= $ 13500

Dollar value of capital income for the Restaurant=$ 70000- 3000

= $67000

Dollar value of Total Labor Income = Sum of Wages=$ 20000

Dollar value of Imports =Nil

Dollar value of consumption =Total Expenditure-Net indirect Taxes

= ($ 45x2000)-6500

=90000-6500

=$83500