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Difficulty: EasyOutput (Value Added) Method of Measurement

A cotton farmer sells raw cotton to a textile mill for ₦50,000. The textile mill processes the cotton into fabric and sells it to a garment factory for ₦120,000. The garment factory turns the fabric into shirts and sells them to final consumers for ₦200,000. What is the total contribution of this production process to National Income using the output (value-added) method?

  1. ₦200,000Answer
  2. B
    ₦370,000
  3. C
    ₦150,000
  4. D
    ₦170,000

Answer

The total contribution to National Income is ₦200,000.
The output method avoids double counting by summing only the incremental net value created at each production stage (₦50,000 + ₦70,000 + ₦80,000 = ₦200,000), which also equals the final market value of the consumer goods.

Step-by-Step Solution

1
Calculate the value added by the cotton farmer
₦50,000 - ₦0 = ₦50,000
The raw cotton has no specified intermediate cost.
2
Calculate the value added by the textile mill
₦120,000 - ₦50,000 = ₦70,000
Subtract the cost of intermediate raw cotton from the fabric sales value.
3
Calculate the value added by the garment factory
₦200,000 - ₦120,000 = ₦80,000
Subtract the cost of intermediate fabric from the final shirt sales value.
4
Sum the net value added at each stage
₦50,000 + ₦70,000 + ₦80,000 = ₦200,000
The output method measures National Income by summing the net value added at every stage of production.

Key Concept

Output (Value Added) Method of Measurement
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Topics

Output (Value Added) Method of Measurement

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