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CA Foundation · Business Economics · Determination of National Income

A farmer sells wheat worth ₹60,000 to a flour mill. The mill grinds it into flour and sells it for ₹90,000 to a bakery. The bakery makes bread and sells it to consumers for ₹130,000. What is the total contribution of these three units to GDP by the value added method?

The contribution is ₹1,30,000. Value added is ₹60,000 by the farmer, ₹30,000 by the mill and ₹40,000 by the bakery, which sum to the final bread value. Adding all sales (₹2,80,000) would double count intermediate goods.

  1. A₹2,80,000
  2. B₹1,30,000Correct
  3. C₹70,000
  4. D₹90,000

Explanation

Value added: farmer ₹60,000 (assuming no inputs), mill 90,000 − 60,000 = ₹30,000, bakery 130,000 − 90,000 = ₹40,000. Total = 60,000 + 30,000 + 40,000 = ₹1,30,000, equal to the value of final bread. Adding all sales gives ₹2,80,000, which double counts.

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