Consider a production process for a wooden chair. A lumberjack sells raw wood to a sawmill for $20. The sawmill processes the wood into lumber and sells it to a furniture maker for $50. The furniture maker builds a chair and sells it to a retail store for $90. The retail store then sells the chair to a final customer for $120. If a new, more efficient saw allows the sawmill to sell the lumber to the furniture maker for $40 instead of $50 (with all other prices remaining the same), how does this change the value added by the furniture maker?

Calculating Value Added in a Production Chain

Calculating Domestic Value Added with Imports

True or False: In a production chain where a farmer sells wheat for $10 to a miller, who sells flour for $25 to a baker, who then sells bread for $40 to a consumer, the total value contributed to the economy is $75 ($10 + $25 + $40).

A bicycle is produced and sold in a multi-stage process. A mining company sells ore to a steel mill for $30. The steel mill sells steel tubes to a frame manufacturer for $70. The frame manufacturer sells the completed frame to an assembly plant for $120. The assembly plant sells the finished bicycle to a retailer for $250, who then sells it to a final consumer for $350. Match each business with the value it adds during its stage of production.

Correcting a Flawed Economic Calculation

Identifying Maximum Value Contribution

Consider a simplified production process for a bookcase. Initially, a logger sells wood for $40 to a mill. The mill processes it into lumber and sells it to a furniture factory for $70. The factory then produces a bookcase and sells it to a retailer for $150. The retailer sells the bookcase to a final customer for $200. Now, imagine the furniture factory vertically integrates, buying the forest and logging the wood itself. It still produces the same bookcase and sells it to the retailer for $150, who in turn sells it to the customer for $200. How does this vertical integration affect the total value added to the economy from the production and sale of the bookcase?

Deconstructing Value in a Production Chain

A leather-bound book is sold to a final consumer for $120. The production process involves four stages. The rancher who provides the raw hide adds $15 in value. The bookbinder who assembles the book adds $40 in value. The final retailer adds $30 in value. The tannery processes the hide into leather and is the second stage in this chain. At what price does the tannery sell the processed leather to the bookbinder?