A restaurant buys bread from bakers and uses it to make sandwiches for its customers. While calculating the value added of the restaurant, the value of the bread is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → subtracted from the value of sandwiches
Value added is the value of a firm’s output minus the intermediate goods it uses. For the restaurant, bread is an intermediate good, so it is subtracted.
Option (1) added to the value of sandwiches — Incorrect. Adding the bread would count it twice; the bakers already counted it.
Option (2) subtracted from the value of sandwiches — Correct. Bread is an input, so its value is subtracted.
Option (3) counted as final consumption expenditure — Incorrect. The restaurant uses the bread up in production, so it is not final consumption.
Option (4) counted as investment of the restaurant — Incorrect. Investment adds to capital stock; bread is used up in a single use.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … For example, the farmer may be using fertilisers or pesticides to produce wheat. The value of these inputs will have to be deducted from the value of output of wheat. Or the bakers may be selling the bread to a restaurant whose value added will have to be calculated by subtracting the value of intermediate goods (bread in this case). …” |