In order to avoid double counting value added approach is used

The Value Added Approach / The value Added Method:
In order to avoid double counting value added approach is used. According to this approach, the value added at each stage of the production process is included. The difference between the value of final outputs and inputs, at each stage of production is called the value added. Thus, GNP is obtained as the sum total of the values added by all the different, stages of the production process, till the final output is reached in the hands of consumers, to meet the final demand. This can be illustrated with the help of the following table.

Table No. 8.1 – Value Added Method
Production Stages
Value of Output (`)
Value of Input (`)
Value Added (`)
Wheat (Farmer)
700
0
700
Flour (Flour mill)
1000
1000
300
Bread (Baker)
1300
1000
300
Retailer (Merchant)
1400
1300
100
Total Value


1400

Here, we have assumed a much simplified model of an economy, producing only a single final product, bread. It is assumed, that there are four productive stages in production of bread.
         In the given example farmer produces and sells wheat for ` 700/- to the miller. Miller sells flour for ` 1000/- to the baker. Baker sells bread for ` 1300/- to the retailer/merchant. Retailer sells bread for ` 1400/- to the consumers. So the value added by farmer (` 700), miller (` 300), baker (` 300) and retailer (` 100) that is, total of ` 1400 should be included in the national income.
To avoid double counting, either the value of final output or the sum of value added should be taken in the estimate of GNP.

3 comments:

  1. Bhai 2 marks ke liye itna bada answer nhi likhna hai.

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  2. main soch raha tha poora chapter hi likh du

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