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Difficulty: MediumOutput (Value Added) Method of Measurement

A production chain involving limestone quarrying, cement manufacturing, building construction, and real estate sales recorded the following market transaction values:

Stage of ProductionSelling Price (₦)Cost of Intermediate Inputs (₦)
Limestone Quarrying80,0000
Cement Manufacturing210,00080,000
Building Construction350,000210,000
Real Estate Retail420,000350,000

Match each stage of production on the left with its correct net Value Added contribution to National Income on the right.

  • Limestone Quarrying₦80,000
  • Cement Manufacturing₦130,000
  • Building Construction₦140,000
  • Real Estate Retail₦70,000

Answer

Limestone Quarrying matches ₦80,000; Cement Manufacturing matches ₦130,000; Building Construction matches ₦140,000; Real Estate Retail matches ₦70,000.
Under the output method of national income measurement, net value added is obtained by subtracting intermediate consumption from total output value at each stage of production. For the given chain: Limestone Quarrying adds ₦80,000, Cement Manufacturing adds ₦130,000, Building Construction adds ₦140,000, and Real Estate Retail adds ₦70,000.

Step-by-Step Solution

1
Recall the net Value Added formula for national income accounting.
Value Added=Gross Output (Selling Price)−Intermediate Consumption (Input Cost)\text{Value Added} = \text{Gross Output (Selling Price)} - \text{Intermediate Consumption (Input Cost)}
To prevent double counting, only the net contribution of each production stage is included.
2
Calculate net Value Added for Limestone Quarrying.
₦80,000−₦0=₦80,000\text{₦}80,000 - \text{₦}0 = \text{₦}80,000
Primary extraction stage has zero intermediate cost.
3
Calculate net Value Added for Cement Manufacturing.
₦210,000−₦80,000=₦130,000\text{₦}210,000 - \text{₦}80,000 = \text{₦}130,000
Deduct the cost of raw limestone purchased from the quarry.
4
Calculate net Value Added for Building Construction.
₦350,000−₦210,000=₦140,000\text{₦}350,000 - \text{₦}210,000 = \text{₦}140,000
Deduct the cost of manufactured cement purchased from the cement factory.
5
Calculate net Value Added for Real Estate Retail.
₦420,000−₦350,000=₦70,000\text{₦}420,000 - \text{₦}350,000 = \text{₦}70,000
Deduct the construction cost of the building from the final property sale price.

Key Concept

Output (Value Added) Method of Measurement
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Topics

Output (Value Added) Method of Measurement

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