Why are only 'final goods' and services counted?

Asked by vatsalchoudhary41 | 15th May, 2015, 07:42: AM

Expert Answer:

The problem of double counting is the problem of estimating the value of goods and services more than once. Value of intermediate goods is not included in the estimation of gross domestic product because value of intermediate goods is reflected in the value of final goods. For e.g. a farmer sold wheat to flour mill for Rs. 10 per kg. The mill grinds the wheat and sold the flour to a biscuit company for Rs. 12 per kg. The biscuit company uses the flour, sugar and butter to make 5 biscuit packets. He sold the biscuit to the consumer at Rs. 15 per biscuit packet (Rs. 75). Here biscuits are the final goods that are purchased by the consumer. Wheat and wheat flour are the intermediate goods used in the production of final good. Hence, the value of Rs 75 already includes the value of flour Rs. 12. Hence the value of only final goods and services is taken into consideration. 

Answered by Tharageswari S | 15th May, 2015, 10:35: AM

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