Question

1- A.U.S-owned automobile factory uses $50 million worth of materials produced in the US. and $10 million of worth purchased from foreign countries to produce $100 million of automobiles. $70 million worth of these automobiles are purchased by consumers, $25 million are sold in foreign countries, and million are added to inventory How much of this production is included in US. GDP? By how much do these transactions alone affect U.S. net exports?

2- Suppose that instead of a supply-demand diagram, you are given the following information:

Q_s = 100 + 3P

Q_i = 400 - 2P

From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that

Q_i = 400 - (2P + T).

If T = 15, solve for the new equilibrium price and quantity. And show theses points on supplay-demend diagram. (Note: P is the price received by sellers and P+T is the price paid by buyers) compare theses answers for equilibrium price and quantity with your first answer. What does this show you regarding the price buyers pay, the price buyers pay, the price sellers received, the size of the market, consumer surplus producer surplus, tax revenue, and dead weight loss?

Answer 1

1) GDP is the value of FINAL goods and services produced in the country.

So 50 million worth of millions produced in US and other 10 million purchased from foreign countries are not included as these materials are intermediate goods and not final goods.

70 million worth of automobiles purchased by consumers, 25 million worth sold to foreign countries and 5 million worth added to inventory, are added to gdp as these are final goods produced in US. Gdp is 100 million

Out of this 25 million worth of automobiles alone affect US net exports.