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National income problem of double counting
There are two methods to avoid double counting when measuring national income: the final product method and the value added method. The final product method only considers the value of final goods and services, while the value added method sums the total value added by each firm in the production process. For example, in the production of bread, the farmer adds Rs. 300 in value, the mill adds Rs. 500, and the baker adds Rs. 500, for a total value added of Rs. 1300 using the value added method, compared to Rs. 1500 using the final product method.
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National income problem of double counting
- 1. By : DhirendraChauhan Problem of Double Counting
- 2. Problem of DoubleCounting âCounting the value of a product more than once in the measurement or estimation of national income is called double countingâ
- 3. To avoid doublecounting, Two methods are adopeted. 1. Final Product Method 2. Value Added Method
- 4. 1. Final ProductMethod According to this method , value of âonly final goodsâ and services are to be considered while estimating the GDP
- 5. 2. Value AddedMethod According to this method, sum total of value added by each firm should be taken while estimating GDP
- 6. Estimating Value Addition EnterpriseOutput Value of Output ( âš ) Intermediate consumption ( âš ) Value Added ( âš ) Farmer Wheat 500 200 300 Mill Flour 1000 500 500 Baker Bread 1500 1000 500 Total 3000 1700 1300 in the table, the gross value added by all the producing enterprises is Value Added Method:- âš 300 + âš 500 + âš 500 = âš1300 Final Product Method:- âš 1500
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