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Value Added

The value-added measure of GDP adds together the value of output produced by each of the productive sectors in the economy.  Therefore it is the increase in the value of goods or services as a result of the production process

Value added = value of production - value of intermediate goods

Below is an example of how value added works in the production of food that eventually gets sold in supermarkets. The farm produces the food with a value of £100. The food then gets sent to the meat processor which adds another £100 on to the value taking it to £200. This processed meat then gets sent to the food manufacturers who package and brand the product adding another £200 to the value taking it to £400. Finally the supermarket buys the food from the food manufacturer and tsocks it on their shelves and this takes the final value to £800.

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