CSEET · Economic and Business Environment · National Income Accounting and Related Concepts
A steel firm buys iron ore worth ₹40 crore and produces steel sold to an automobile firm for ₹70 crore. The automobile firm uses this steel to make cars sold to consumers for ₹120 crore. Ignoring other inputs and taxes, what is the contribution to GDP of these transactions under the value added method?
The contribution to GDP is ₹120 crore. Adding value at each stage gives 40 for ore, 30 for steel and 50 for cars, which equals the final value of cars. Summing all sales to ₹230 crore would double count intermediate goods.
- A₹230 crore
- B₹190 crore
- C₹120 croreCorrect
- D₹80 crore
Explanation
Value added: steel firm 70-40 = 30; car firm 120-70 = 50; ore producer 40-0 = 40. Total = 120 crore, equal to the final product value. Adding all sales (230) counts intermediate goods repeatedly, which is the double counting error.
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