Example 1

• Imagine an economy composed of just two firms: a

steel firm and an automobile firm that manufactures
cars. The automobile firm sells cars to customers.
Firm 1 produces steel, employing workers and using
machines to produce the steel. It sells the steel for Rupees
10000 to Firm 2. Firm 1 pays its workers Rupees 8000,
leaving Rupees 2000 in profit to the firm.
Firm 2 buys the steel and uses it, together with workers and
machines, to produce cars. Revenues from car sales are
Rupees 20000. Of the Rupees 20000, Rupees 10000 goes to
pay for steel and Rupees 7000 goes to workers in the firm,
leaving Rupees 3000 in profit to the firm.

1
 Example
Firm 1
Revenues from sales Rupees 10000
Expenses Rupees 8000
Wages Rupees 8000
Profit Rupees 2000
Firm 2
Revenues from sales Rupees 20000
Expenses Rupees 17000
Wages Rupees 7000
Steel purchases Rupees 10000
Profit Rupees 3000

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 GDP Measurement: Example 2
• Consider an economy with three firms A, B & C. Firm
A grows oranges and sells to firms B & C. Firm B
produces orange juice. Firm B exports part of its
products and sells the rest to Firm C. Firm C is a
retail store that sells the juice manufactured by Firm
B in the domestic market and the rest of the oranges
harvested by Firm A. Below are balance sheets for all
three firms for year 2013. All values are in Rupees.
• What is the total value of the economic activity
generated by these firms?

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 GDP Measurement: Example
Firm A
Revenues from sale 100
Expenses 50
Wages 50
Profits 50
Firm B
Revenues from sale 200
Expenses 100
Wages 50
Orange purchases 50
Profits 100
Firm C
Revenues from sale 500
Expenses 150
Juice purchases 100
Orange purchases 50
Profits 350