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CA Foundation · Business Economics · Determination of National Income

Under the value added method of measuring national income, the contribution of a firm to GDP at market prices is best measured as:

A firm's contribution under the value added method is the value of its output minus the intermediate goods it bought from other firms. Subtracting intermediate consumption avoids double counting of the same goods at successive stages of production.

  1. AValue of its output minus the value of intermediate goods purchased from other firmsCorrect
  2. BValue of its total sales plus the value of its closing stock
  3. CValue of its output plus the value of raw materials purchased
  4. DIts wage bill plus its dividend payments only

Explanation

Value added equals the value of output less the value of intermediate consumption bought from other firms. This avoids double counting. Adding raw material costs to output would count them twice, so that option is wrong.

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