As per the Value Added Method of measuring national income identify which of the following item is excluded?a)Brokerage and Commission earned by dealers of second hand goodsb)Sale of second hand machinesc)Production for Self Consumptiond)Imputed rent of owner occupied houses.Correct answer is option 'B'. Can you explain this answer?

Question

Answer

Value Added Method of Measuring National Income

The Value Added Method of measuring national income is used to calculate the value of goods and services at each stage of production. This method calculates the difference between the value of the output and the value of the inputs used in the production process.

Exclusions from National Income

In the Value Added Method, certain items are excluded from the calculation of national income. These exclusions are:

1. Brokerage and commission earned by dealers of second-hand goods
2. Sale of second-hand machines
3. Production for self-consumption
4. Imputed rent of owner-occupied houses

Explanation of Exclusion

The item excluded from the calculation of national income in this question is the sale of second-hand machines. This exclusion is based on the fact that the sale of second-hand machines does not involve any new production or value addition. The machines were already produced and included in the national income at the time of their initial production.

On the other hand, brokerage and commission earned by dealers of second-hand goods are included in the national income because they represent the value added by the dealers in the process of selling the second-hand goods.

Similarly, production for self-consumption is excluded from the national income because it does not involve any market transactions. The imputed rent of owner-occupied houses is also excluded because it is not a market transaction and is difficult to measure accurately.

Conclusion

In conclusion, the Value Added Method of measuring national income excludes certain items such as the sale of second-hand machines, production for self-consumption, and imputed rent of owner-occupied houses. These exclusions are based on the fact that they do not involve any new production or value addition.

Answer

Option 'B' is correct as the value of second hand goods are already included in national income at the time of first sale ,so once the value is recorded it can't be recorded again as it causes the problem of 'double counting'.

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