An Italian restaurant purchases an orange for $2 to make fresh orange juice, which it then sells for $5. Meanwhile, Alison buys an orange for $1 at wholesale for her grocery store and resells it to a customer for $3. What is the total contribution of these two transactions to GDP?[Fill in the blank]

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BlackTom AI · Accepted Answer

First, let's restate the problem in my own words: Two separate transactions occur. (1) An Italian restaurant buys an orange for $2 to make fresh orange juice and sells the juice for $5. (2) Alison buys an orange for $1 at wholesale and resells it to a customer for $3. We are asked for the total contribution of these two transactions to GDP.

Now, evaluate each option by considering how GDP is measured here. GDP contribution from each transaction equals the value added, not the total sales price.

Option a: $3. This would represent the value added from the restaurant transaction alone (selling price $5 minus cost $2 equals $3). However, this ignores Alison's transaction entirely, so it cannot be the total contribution from both transactions.

Option b: $5. This matches the combined value added from both transactions: restaurant contributes $3 (5 − 2 = 3), and Alison contributes $2 (3 − 1 = 2). Adding these together yields 3 + 2 = 5. This is the total value added to GDP from both activities.

Option c: $8. This would be the sum of the final sale prices ($5 + $3 = $8). GDP contribution is based on value added, not total revenue, so simply summing final prices overstates the contribution by counting intermediate value twice.

Option d: $2. This would reflect only Alison's value added (3 − 1 = 2) and ignores the restaurant's contribution entirely, undercounting the total.

To synthesize: the correct GDP contribution from these two transactions is the sum of the individual value-added components, which equals (5 − 2) + (3 − 1) = 3 + 2 = 5. The other options either omit one transaction, double-count revenue, or misinterpret value added as total sales. The reasoning shows why the $5 figure properly captures the combined value added from both activities.

An Italian restaurant purchases an orange for $2 to make fresh orange juice, which it then sells for $5. Meanwhile, Alison buys an orange for $1 at wholesale for her grocery store and resells it to a customer for $3. What is the total contribution of these two transactions to GDP?[Fill in the blank]

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