Value Added in National Income Accounting

Value added is a concept used in national income accounting to measure the value created in the production process by a firm, industry, or the entire economy. The value added is the difference between the value of the output produced by a firm or industry and the value of the inputs used in the production process.

Measurement of Value Added

Value added is measured by deducting the cost of intermediate inputs from the value of output produced. Intermediate inputs are goods and services used in the production process that are not included in the final product. The value of output is the revenue generated from the sale of goods and services produced by a firm or industry.

Importance of Value Added

Value added is an important concept in national income accounting because it helps in measuring the contribution of various sectors of the economy to the overall economic growth. The value added by a sector is an indicator of the level of economic activity in that sector. It also helps in comparing the productivity of different sectors of the economy.

Value Added and Related Concept

Value added is related to other concepts used in national income accounting such as gross domestic product (GDP), gross national product (GNP), and net national product (NNP). GDP is the total value of goods and services produced within a country's borders in a given period, while GNP is the total value of goods and services produced by a country's residents, regardless of their location. NNP is the total value of goods and services produced by a country's residents, adjusted for depreciation.

Conclusion

In conclusion, value added is an important concept in national income accounting that measures the value created in the production process by deducting the cost of intermediate inputs from the value of output produced. It helps in measuring the contribution of different sectors of the economy to the overall economic growth and comparing the productivity of different sectors. Value added is related to other concepts used in national income accounting such as GDP, GNP, and NNP.

Value-added in an industry refers to the difference between the total revenue of an industry and the total cost of inputs—the sum of labor, materials, and services—purchased from other businesses within a reporting period.