Understanding Value Addintion

• In product method we calculate the aggregate annual value of goods...

In product method we calculate the aggregate annual value of goods and services produced in a year. It is also known as the Value Added method. In this method GDP is the sum of Gross Value Added by the entire production units in the economy.

The term that is used to denote the net contribution made by a firm is called its value added.


Simply it is the difference between value of output and input/ raw material/ intermediate product at each stage of production is called value added.


the value added (value addition) of a firm = value of production of the firm () value of intermediate goods used by the firm.

Gross Value Added = (gross)Value of Output (gross)Value of intermediate goods.


value of output =[ sales + change in stock] intermediate consumption
If we include depreciation in value added, then the measure of value added that we obtain Gross Value Added. If we deduct the value of depreciation from Gross Value Added, we obtain Net Value Added.


Net Value Added (NVA or NDPFC ) = Value of output Intermediate consumption Consumption of fixed capital Net indirect taxes.


Net Value Added at Market Price = Net Domestic Product at Market Price = Gross Value Added at Market Price Depreciation.


Net Value Added at Factor Cost = Net Domestic Product at Factor Cost = Net Domestic Product at Market Price Net Indirect Tax

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