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    Output as Value Added

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    Consider an economy with three productive sectors: mining and farming; manufacturing; and retailing. Manufacturers produce goods each year with a sale value of 500. They sell 400 to retailers and 100 direct to the private sector and to government for consumption. Retailers buy goods for 400 from manufacturers and buy 50 from the agricultural sector. Retailers sell goods for consumption for 500. Manufacturers buy goods worth 200 from mining and agricultural firms. Farmers also sell 100 direct to the private sector for consumption. Mining companies sell nothing directly to government or households for consumption.
    What is value added in each sector and what is total output for the economy?

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    Solution Preview

    Remember that GDP is only the final value of goods produced. So we need to look at the direct sales of each sector:
    Mining: 0
    Farming: 100
    Manufacturers: 100
    Retail: 500
    This gives us a GDP of 700

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    Solution Summary

    Economy of three sectors and value added in each; total output of the economy. The value added in each sector is determined.