Chapter 2: Lecture 5 Value Added

Approach to Measuring GDP

Prof. Dr. Magdy El-Shourbagui
Misr University for Science & Technology
Contents
 Definition of Final Goods and Services.
 Definition of Intermediate Goods.

 The Difference Between Final Goods and Intermediate Goods.

 Definition of Value Added.

 Measuring GDP by Using The Value Added Approach.

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Definition of Final Goods and Services

Final goods and services are

goods and services that are
bought by consumers or investors
for the final use.

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 Definition of Final Goods and Services
Examples of final goods bought by consumers are milk,
sugar, bread or bakery products, and TV sets.

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Definition of Intermediate Goods.

Intermediate goods are goods

that are used in the production
process to produce a final good or
finished product.
Many intermediate goods that can
be used for several purposes.
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 Definition of Intermediate Goods.
Examples of intermediate goods include steel,
wood, glass, tires. flour and cotton.

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 The Difference Between Final Goods
and Intermediate Goods.
The distinction between final goods as well as
intermediate goods is made based on the end-
use of the product. A product can be an
intermediate good and final good, relying on its
nature of use.

If the end-use of good is consumption or

investment, then it is a final good. However, if
the good is used for further production, then it
is an intermediate good.

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 Definition of Value Added.
The value-added, VA, is the value of
output of all final goods and services
produced in a given time period minus
the value of all intermediate goods used
in the production process during the
same time period.

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Example (1)

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 Measuring GDP by Using The Value Added
Approach

The value-added approach to measuring

GDP defines GDP as the sum of the
value-added at all stages of production:
n
GDP = Σ VAi
i =1

i = 1, ......, n
Where:

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Example (1):

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Example (2):

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