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Product Method
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This is part one of the Product or Value added method.

Arpita Prakash
YouTuber NCERTs series initiator at Unacademy 'Educator of the Month' for Feb'19 CBSE 0.1% Merit Certificate holder in Mathematics

U
Unacademy user
why do we do not calculate the value of intermediate goods to the value added of a firm ( despite the firm incurring costs in buying intermediate goods) ???? please please clear my doubt
thank you so much ...
  1. PRODUCT OR VALUE ADDED METHOD oCalculation of aggregate annual value of goods and service produced o Considering an year as time unit o Value added->term to denote net contribution made by a firm o Value added of a firm value of production of firm- value of intermediate goods used by firm . Distributed among four factors of production - labour, capital, land, entrepreneurship - Flow variable (wages, interests, profits, rents) oExample: Table 2.1: Production, Intermediate Goods and Value Added Farmer Baker 100 Total production Intermediate goods used0 Value added 200 50 200 50 150 100


  2. Value added of a firm = Value of production of firm-value of intermediate goods used by the firm Gross Value Added Value addedDepreciation (consumption of fixed capital /replacement investment) . Net Value Added Gross Value Added-Depreciation doesn't include wear and tear of capital ) Example: o Value of production of a good by firm Rs 100 (per year) o Value of Intermediate goods used during that year Rs 20 o Value of Capital Consumption Rs 10 o Gross Value Added Rs 100- Rs 20- Rs 80 per year o Net Value added Rs 100- Rs 20- Rs 10 Rs 70 per year