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Output as Value Added
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?
Suppose that the economy is short of its full-employment (potential) level of GDP, assumed to be $14,000 billion, by $500 billion.
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Consider the Figure below that represents a perfectly competitive firm
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