Economics

Question 2:

(a) Which of the following are final goods and services and which are intermediate goods and services? Please explain why in your answer. (4 marks – 1 mark each)

Final Goods and services - finished goods and services produced for the ultimate user.

Intermediate goods and services- goods and services used as inputs for the production of final products.

(i) A new bulldozer to be used by a construction company;

Answer: This is a final good because the bulldozer is considered as finished goods to be used by the construction company. However if the bulldozer will be used to produce another end product or service it will become an intermediate good.

(ii) A windscreen purchased by a motor vehicle spare parts supplier;

Answer: This is an intermediate good because it was already included in the gdp when produced and now it is being sold in a depreciated amount to the supplier as a 2nd hand good.

(iii) A home call car tuning service as a franchise of large national chain;

Answer: This is final good or service because the resale value of the service has a added value which is not included in gdp.

(iv) Coking coal

Answer: This is intermediate good unless being sold in exporting because it is used in making steel and iron.

(b) An economy produces final goods and services with a market value of $900 billion in a given year, but only $875 billion worth of goods and services is sold to domestic or foreign buyers.

Is this nation’s GDP $900 billion or $875 billion? Explain your answer. (2 marks)

Answer: The nation’s GDP for the year is $900 billion, not $875 billion. GDP includes the market Value of final goods and services produced, regardless of whether these products are sold. The unsold products are added to firms’ inventories and included in gross national domestic Investment.

(c) Explain why a new truck sold for use by a transport company is a final good, even though it is a fixed investment (capital) used to produce other goods. (2...