Question

How do we count and calculate the value of goods and services in the three economic sector? Explain with the help of example.

Answer 1

While estimating the performance of a sector, only the value of final goods and services is used. This is for avoiding double counting. “The counting of the only the value of final goods and services is used. This is for avoiding double counting. “The counting of the value of a product more than once is called as double counting.” This leads to the overestimation of the value of goods and services produced. Let us understand the concept with the help of an example- A farmer produces one ton of wheat, and sells it for X 100 to a flour mill. As far as the farmer is concerned, the sale of wheat is a final sale for him. But the purchase of wheat by the flour mill is an intermediate goods. He converts the wheat into flour and sells it to a baker for X 150. The flour mill treats the flour as a final product, but for baker it is an intermediate goods. The baker sells the bread to the shopkeeper for X 200, and the shopkeeper to the consumer for X 250.
Value of output = Farmer (X 100) + Flour mill (X 150) + Baker (X 200) + Shopkeeper {X 250) = X 700 .
So while calculating the national income only the value of the final output; i.e., X 250 should be included not X 700.