The shoe production process in Country C is as follows

There are two factories:

  1. A leather factory (intermediary goods) with 10 workers earning $80 each.

  2. A shoe factory (finished goods) with 10 workers earning $100 each.

Production costs in Country C are the same as in Country B. The following table summarizes Country C’s production.

GDP is calculated according to three methods:

  1. Total added value of each factory: $2,000 (leather factory: $1,000 + shoe factory: $1,000).

  2. Total revenue from finished goods, minus imports: $2,000 (total sales: $3,000, minus imports: $1,000).

  3. National income: $2,000 (total wages: $1,800 + profit: $200).


If Country A bakes 1,000 loaves of bread and exports 300 of them to a foreign country, then the value of the exported loaves of bread is still counted as part of Country A’s GDP. The significance of this point will become apparent later.