Question

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

Answer 1

Double counting means counting of the value of the same product (or expenditure) more than once.

Theoretically, we may say that there may be two alternative ways of avoiding double counting, namely, (i) final product approach and (ii) value added approach. But in actual practice, double counting still occurs unintentionally in final product approach because every producer treats the product he sells as a final product though the same might have been used by the buyer as an intermediate product.

Therefore this problem is perfectly solved by value added method. According to this method, instead of taking value of final products, value added by each firm at each stage of production is included.