Question

Consider the following scenario:

• Commodity firm Metals Inc. is based in China and mines $5M in metal that they sell/export from their Chinese plant to Intel’s U.S. factory.
• Intel takes this metal and uses it to produce processors, which they sell for $25M to Apple’s factory in China.
• Apple uses the processors to make computers, which they sell for $40M to U.S. consumers.
• Even though it’s not realistic, assume there are no other components used at any point along the way.

What is the contribution of the above to U.S. GDP?

Please provide your answer in terms of M: $100M = 100

Answer 1

Intel imports metal worth $5 million from China. It uses this metal to make processors and sell them to Apple for $25 million.

Value added by Intel = Value of output - Raw materials cost = $25 million - $5 million = $20 million

The value added by Intel is $20 million.

Apple uses processors to make computers and sell them to US consumers for $40 million.

Value added by Apple = Value of output - Raw material cost = $40 million - $25 million = $15 million

The value added by Apple is $15 million

Calculate the contribution to US GDP -

Contribution to US GDP = Value added by Intel + Value added by Apple = $20 million + $15 million = $35 million

Thus,

The contribution to US GDP is $35M = 35