Scenario 8-1
CANOES-R-US makes canoes.It buys the shell of the canoe from another local firm for $300 and uses its labor and intermediate goods to make the canoe.It sells the finished canoe to a retail canoe store for $800.The retail canoe store then sells the canoe to a consumer for $1,200.
-Refer to Scenario 8-1.The value added of CANOES-R-US for each canoe equals
A)$1,200.
B)$800.
C)$500.
D)$400.

Question

Quizplus · Accepted Answer

Value added is the difference between the selling price of a good and the cost of intermediate goods used to produce it.

CANOES-R-US buys the shell of the canoe for $300 and adds labor and intermediate goods to produce the finished canoe. Therefore, its value added is the difference between the selling price of the finished canoe to the retail store ($800) and the cost of the shell ($300), which equals $500. Therefore, the correct choice is C.

Scenario 8-1 CANOES-R-US Makes Canoes.It Buys the Shell of the Canoe from Canoe