How is value added method useful in avoiding double counting? Explain

1.	How is value added method useful in avoiding double counting? Explain with an example.
Answer» To avoid double counting in value added method, only the value of final consumable goods is added to find the correct value at every step. The expenditure made on factors of production is reduced from value of product. Example : Production of bread includes three parties-baker, flourseller, and farmer. The value of product is calculated as follows : Market value of bread = Rs. 30 Value of flour = Rs. 25 Value of wheat = Rs. 20 The production value of bread = Value of wheat + (value of flour – value of wheat) + (value of bread – value of flour) = Rs. 20 + (Rs. 25 – Rs. 20) + (Rs. 30 – Rs. 25) = Rs. 20 + Rs. 5 + Rs. 5 = Rs. 30 (This will be added to national income) If we add the value of products of all the three parties (i.e. Rs. 30 + Rs. 25 +Rs. 20 = Rs. 75), then the value of production which we get is faulty.

How is value added method useful in avoiding double counting? Explain with an example.

Answer»

To avoid double counting in value added method, only the value of final consumable goods is added to find the correct value at every step. The expenditure made on factors of production is reduced from value of product.

Example : Production of bread includes three parties-baker, flourseller, and farmer.

The value of product is calculated as follows :
Market value of bread = Rs. 30
Value of flour = Rs. 25
Value of wheat = Rs. 20
The production value of bread

= Value of wheat + (value of flour – value of wheat) + (value of bread – value of flour)
= Rs. 20 + (Rs. 25 – Rs. 20) + (Rs. 30 – Rs. 25)
= Rs. 20 + Rs. 5 + Rs. 5
= Rs. 30 (This will be added to national income)
If we add the value of products of all the three parties

(i.e. Rs. 30 + Rs. 25 +Rs. 20 = Rs. 75), then the value of production which we get is faulty.

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