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April 2004 q14

J

John H

Member
In a simple closed economy.

Sales = £1 million
Buy raw materials = £400,000
Electricity costs = £100,000
Depreciation of capital equipment = £200,000

Contribution to GDP via the output method is:

Sales - costs of intermediate goods = 1 million - 400,000 = 600,000

The answer is £500,000, so obviously deducts electricity costs but why? Electricity is not an intermediate good is it?

Can anyone shed some light on this??
 
Electricity is an intermediate good in this situation. If you think about the value of the final good produced it will take the electricity cost into account, so I think in this instance electricity is an intermediate good.

Electricity supplied to the end user (consumer) will be considered 'final' goods.
 
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