Question

Eli is a landscaper who builds patios and decks for his customers. suppose he purchases $1200 of patio stones for a project and hires employees to build the patio at a cost of $800 in wages. he also uses his own talents in designing the patio and his talent is worth $500. he charges his customer $3500 for the finished patio. using the income approach, eli has created _____ of gross domestic product.

Answer 1

Eli has created $1,000 of gross domestic product. This can be calculated by using the formula of GDP using the income approach.

GDP = Net Income + Indirect Business Taxes + Depreciation

In this problem, we can only compute the Net Income, therefore it would eventually equal to GDP.

To compute the Net Income, you need to subtract all the expenses from the revenue which is $3,500.

$3,500 - $1,200 - $800 - $500 = $1,000