A tire manufacturer produces 400 tires valued at $20 each.Three hundred tires are sold to a tire shop,which then sells them to households for $50 each.The remaining tires are unsold and are added to the tire manufacturer's inventory.How much is added to GDP?

Question

Quizplus · Accepted Answer

The tire manufacturer's production of 400 tires, valued at $20 each, contributes $8,000 to GDP (400 x $20 = $8,000).
When 300 tires are sold by the tire shop to households for $50 each, the value added to GDP is $30,000 (300 x $50 = $30,000), as the tire shop has added value to the tires by selling them to households at a higher price than they purchased them for.
The unsold tires that are added to the tire manufacturer's inventory do not contribute to GDP until they are sold to a final user (such as a household or business). Therefore, they do not add to GDP in this scenario.
Total contribution to GDP = $8,000 + $30,000 = $38,000. 
Thus choice C ($17,000) is the correct answer.

A Tire Manufacturer Produces 400 Tires Valued at $20 Each