Question

Tina walks into Ted’s sporting goods store and buys a punching bag for \(100. That \)100 payment counts as ______________ for Tina and _____________ for Ted.

a. income; expenditure

b. value added; multiple counting

c. expenditure; income

d. rents; profits

Short answer

Option C, expenditure; income

Step-by-step solution

 A $100 expenditure and income of Tina and Ted

Expenditure refers to the amount of money that is spent by individuals/entities to buy final goods and services.

For example, if David spends $2 to buy a book, then $2 is the expenditure.

Income refers to the amount of money received from the sale of final goods and services.It is the earning of the factor of production, which includes rent, profit, interest, and wages.

For example, if Carla works in a factory and earns $50/hr, then $50 is her income.

Tina uses $100 to buy a punching bag which is a final good. Thus, $100 is her expenditure. Ted sells the punching bag and earns $100 from it. Thus, $100 is his income.

Reason for incorrect options

Value added is the difference between the final output’s market value and the value of the input used to produce the final output.$100 is the total earning of the good and not the earning at final consumption stage; thus it is not the value added for Tina.

Multiple counting means the inclusion of sales value of inputs in calculating national income.$100 is the value of the final output, so there is no multiple counting. It would have been considered multiple counting if the price of labor, raw material were also paid separately along with $100.

Rents are the earning of capital inputand $100 for paid for the final good and not the capital input used to produce the good.

Profits are the earning of the entrepreneurs over and above the cost of goods and services. $100 is the final earning and includes the cost of producing the bag.