Chapter 2 National Income - Part 3 Value Added Method

Economics Class 12
Macroeconomics

As per this method, we calculate Value addition by different firms and add it

From this, we reduce Depreciation, Indirect Taxes and Add Net Factor Income from Abroad to calculate National Income.

Steps Followed in Value Added Method

1. We identify and classify production units(sectors)
2. We calculate their Value Added Separately and total it to get Gross Value Added at Market Price
3. We reduce net indirect taxes and Depreciation to Arrive at Domestic Income
4. We add net factor income from Abroad to get National Income

Example 2

From the information given below, Calculate

Value added by Firm A and Firm B                ---> Output - intermediate Consumption

Gross Domestic Product at Market Price      ---> Total Value added of A and B

Net Domestic Product at Factor Cost           ---> Domestic income

#### Question 4

 Particulars ₹  in crores (i) Subsidies 1 (ii) Sales 100 (iii) Closing stock 10 (iv) Indirect taxes 5 (v) Intermediate consumption 30 (vi) Opening stock 20 (vii) Consumption of fixed capital 15

#### What is Gross Value Added at Factor Cost?

We know that

GDP at Market Price is equal to Total Value Added by All Sectors/Companies

From this Depreciation is Reduced

So we get Net Value Added at Market Price

 GDP MP (Gross Value Added at Market Price) Less Depreciation Net Value Added at Market Price

Example 3

Calculate Net Value Added at Market Price

 Particulars Amt in Crores Sales 90 Closing Stock 25 Opening Stock 15 Indirect Taxes 10 Depreciation 20 Intermediate consumption 40 Purchase of raw material 15 rent 5

## Find Net Value Added at Market Price

 Particulars Amt in Lakhs Fixed Capital good with a life span of 5 years 15 Raw Materials 6 Sales 25 Net change in stock -2 Taxes on Production 1

#### What is Gross Value Added at Factor Cost?

We know that

GDP at Market Price is equal to Total Value Added by All Sectors/Companies

From this Net Indirect Taxes is Reduced

So we get Gross Value Added at Factor Cost

GDP MP  (Gross Value Added at Market Price)

Less

Net Indirect Taxes (Tax-Subsidy)

Gross Value Added At Factor Cost

Example 4

#### Calculate Gross Value added at Factor Cost

 Particulars Amt in thousands Sales 500 Opening Stock 30 Closing Stock 20 Purchase of Intermediate Products 300 Purchase of Machinery 150 Subsidy 40

#### Note

Net Indirect Taxes

=Taxes-Subsidy

= 0 - 40

= - 40

Sometimes Value of Output is not given in question

It is calculated by multiplying Quantity and Price per unit

OUTPUT = Price per Unit* No of Units Sold

Example 10

#### Calculate Gross Value added at Factor Cost

 Particulars Amt Units of Output Sold 1000 Price per unit of output 30 Depreciation 1000 Intermediate Cost 12000 Closing Stock 3000 Opening Stock 2000 GST 6000

Sometimes Sales, Opening and Closing Stock is given in Question

We have to calculate value of Output

= Sales + Change in Stock

= Sales + Closing Stock - Opening Stock

Example 5

#### Calculate Gross Value Added at Market Price

 Particulars Amt in lakhs Depreciation 20 Domestic Sales 200 change in stock -10 Exports 10 Single use Producer goods 120 Net Indirect Taxes 20

#### What is Net Value Added at Factor Cost?

We know that

GDP at Market Price is equal to Total Value Added by All Sectors/Companies

From this Net Indirect Taxes is Reduced

So we get Gross Value Added at Factor Cost

From this, Depreciation is Reduced to arrive at Net Value Added at Factor Cost

GDP MP (Gross Value Added at Market Price)

Less

Net Indirect Taxes (Tax-Subsidy)

Gross Value Added At Factor Cost

Less Depreciation

Net Value Added at Factor Cost

Example 6

#### Calculate Net Value Added at Factor Cost

 Particulars Amt in lakhs Subsidy 40 Sales 800 Depreciation 30 Exports 100 Closing Stock 20 Opening Stock 50 Intermediate Purchase 500 Purchase of machinery for own use 200 Import of raw material 60

## Question 3

Calculate Net Value Added at Factor Cost

 Particulars Amt in crores Purchase of machinery for production use 100 Sales 200 Intermediate Cost 90 Indirect Taxes 12 Change in Stock 10 GST 6 Stock of Raw material 5

## Question 8

Calculate Net Value Added at Factor Cost

 Particulars Amt Consumption of Fixed Capital 600 GST 400 Output Sold 2000 Price per unit of output 10 Net change in stock -50 Intermediate cost 10000 Subsidy 500

Example 9

#### Calculate Net Value Added at Factor Cost

 Particulars Amt in lakhs Durable use producer goods with a life span of 10 years 10 Single use producer goods 5 Sales 20 Unsold output produced in the year 2 Taxes on production 1

## NCERT Questions

No questions in this part