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Question
Define the value added approach with example.
Solution
In the value-added approach, the value added by each intermediate good is summed to estimate the value of the final goods. Take an example of a cup of tea which is a final good. The goods used to produce it are – tea powder, milk, and sugar. These things (goods) are ‘intermediate goods’ since they form a part of the final good, i.e., the cup of tea. Each intermediate good the tea powder, milk, and sugar, adds value to the final output, the cup of tea.
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