A used car dealer bought a 1998 Volvo for $1,000. He paid a worker $200 to wash it. He purchased four tires for a total of $400 to replace the existing tires on the car. He sold the car for $4,000. All these economic activities took place in 2011. The used car dealer's value added in 2011 was how many dollars?
To find the used car dealer's value added in 2011, we need to calculate the total revenue generated from selling the car minus the total cost of inputs used.
1. Total cost of inputs:
- Purchase price of the car: $1,000
- Worker's wage for washing the car: $200
- Cost of four tires: $400
Total cost of inputs = $1,000 + $200 + $400 = $1,600
2. Total revenue generated:
The used car dealer sold the car for $4,000.
3. Value added:
Value added = Total revenue - Total cost of inputs
Value added = $4,000 - $1,600
Value added = $2,400
Therefore, the used car dealer's value added in 2011 was $2,400.
To calculate the used car dealer's value added in 2011, we need to consider the total value created through their economic activities. Value added is the difference between the final selling price of a good or service and the cost of the inputs used in its production.
In this case, let's break down the costs and selling price:
- The purchase cost of the 1998 Volvo was $1,000.
- The cost of paying a worker to wash the car was $200.
- The cost of purchasing four tires was $400.
- The selling price of the car was $4,000.
To calculate the value added, we subtract the total cost of inputs from the selling price:
Value Added = Selling Price - Total Cost of Inputs
Total Cost of Inputs = Purchase Cost + Worker's Wage + Cost of Tires
Total Cost of Inputs = $1,000 + $200 + $400 = $1,600
Value Added = $4,000 - $1,600 = $2,400
Therefore, the used car dealer's value added in 2011 was $2,400.