Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 15

The value-added method involves taking the price of intermediate outputs (i.e., outputs that will in turn be used in the production of another good) and subtracting the cost of producing each one. In this way, only the value that is added at each step (the sale value minus the value that went into producing it) is summed up. producing it) is summed up. Explain why this method gives us the same result as the standard method of counting only the value of final goods and services.