Question

A farmer grows wheat, which she sells to a miller for $70. The miller turns the wheat into flour, which she sells to a baker for $120. The baker turns the wheat into bread, which she sells to consumers for $135. Consumers eat the bread.

Assume that the above transactions account for all economic activity in an economy.

GDP in this economy is.

Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output.

Assuming there are no intermediate goods beyond those previously described, complete the following table by calculating the value added for each of the three producers. Then enter the total value added in the final row.

Producer	Value Added
	(Dollars)
Farmer
Miller
Baker
Total

True or False: The total value added for the three producers in this economy does not equal the economy’s GDP.

True

False

Answer 1