Prof. Daniela Vidart
Question 1 The small economy of Pizzania produces three goods (bread, cheese and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively. The pizza company uses the bread and cheese from the other companies to make its pizzas. All three companies employ labor to help produce their goods, and the difference between the value of goods sold and the sum of labor and input costs is the firm’s profit. Bread and cheese produced are sold both to the pizza company for inputs in the production of pizzas and to consumers as final goods. The table below summarizes the activities of the three companies.
| Bread Company | Cheese Company | Pizza Company | |
| Cost of Inputs | $0 | $0 | $50 (bread)
$35 (cheese) |
| Wages | $25 | $30 | $75 |
| Total Revenue | $100 | $60 | $200 |
- Calculate the GDP of Pizzania via value added. Show all your calculations.
- Calculate the GDP of Pizzania via expenditure. Show all your calculations.
- Calculate the GDP of Pizzania via income. Show all your calculations.
Question 2. The mayor of the small beach town of Mermaid Cove, CA, talks about her town: “In total, there are 850 people over the age of 16 living in Mermaid Cove. We are honored to have 65 soldiers, who are stationed at the local military base. 300 of our residents work full time at the several locations of the local tavern chain “The Fixed Cod”, while 50 people work part-time at the Shell gas stations and convenience stores in town. I know all the 95 full-time homemakers in person. There are 60 elderly people who have retired. We are proud of our community college with its 150 full-time students (all over the age of 16). Unfortunately, 10 of our residents got arrested last year and will be in the town prison for the next few years. The rest of the people do not have jobs, but they would like to have one. However, 20 of them did not actively look for a job in the previous four weeks.” Show all your work when answering the following questions:
- What is the size of the civilian non-institutionalized working-age population in Mermaid Cove?
- What is the unemployment rate in Mermaid Cove?
Question 3 The table provides data on the economy of Maritime Republic. A fishing company produces fish and crabs for the consumption of consumers, while a fishing supply company produces fishing nets for the fishing company to use.
| 2011 | 2012 | |
| Quantities | ||
| Fish | 1000 | 1100 |
| Crabs | 500 | 525 |
| Fishing Nets | 20 | 50 |
| Prices | ||
| Fish | $20 | $30 |
| Crabs | $10 | $15 |
| Fishing Nets | $50 | $40 |
- What is the GDP deflator equal to in 2009 using 2007 as the base year?
- What is the Consumer Price Index in 2009 (use the total number of consumer goods produced in 2007 as the base-year basket)?