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7.

A farmer sells a bushel of wheat to the miller for $1

Value added =$1(selling price) - $0(cost of goods) =$1.


A miller buys the wheat for $1 and sells the flour to the baker for $3
Value added=$3(selling price) - $1(cost of goods) =$2.
The baker uses the flour to make bread and sells the bread to the engineer for $6
Value added =$6(selling price) - $3(cost of goods) =$3.
Engineer buys the bread for $6 and eat it
Value added =$0(no further sale).
Therefore; the contribution of the bread to the GDP is the final selling price of the
bread which is $6.

8. In economic terms the situation represent a shift from a market transaction to a


non-market transaction. GDP measures the market value of goods and services
produced within a country’s boarders. So this change leads to a decrease in GDP.
Since the service for a butler provided are not exchanged for wage hence they are
not considered in GDP.
It is important to know GDP is a measure of economic activity and not wellbeing
or happiness hence marriage can lead to increased wellbeing for the couple which
is not considered by GDP.

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