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# Value added approach to calculating GDP

In this video, we learn how a nation's GDP can be calculated by summing up the value added by all the intermediate producers in a nation in a method called the value added approach.

## Want to join the conversation?

• Okay so making fabric into jeans adds a \$20 value, but it took labor and dye to do that, which costs money. Why aren't these expenses subtracted from the value add? Why aren't they taken into account for the GDP?
• bro labour and raw materials are factors of production ,these will get added to the value of final product because these get used while producing good
• In real-life accounting of an economy's GDP — for instance, GDP per year — is the value added approach really used? Also, for computing a nation's GDP, do economists use only one of the three approaches (income, expenditure and value added) or do they use a mix of these three (either one or two or all three) depending upon which sector and which economic activity they are trying to measure the market value of?
• Does the value added always equal the final market price?
• It is assumed to. If it doesn't, one might question if there was really value added.
• Where's the profit in making a product that is the exact value of the input? The seller wouldn't make any money in this scenario. Does the value-added approach also add the markup, or is that something that doesn't play a role in GDP?
• The economic cost of a product includes a component that accountants would call a profit.
• At I'm confused why we start from \$0 for the land, seeds, etc. Isn't that worth something?
• Market value is different from intrinsic value (which is subjective; prices are a fact). I don't think consumers (or the people buying the cotton) want the seeds since they can't make much use of them.
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• So what was the Gross Value of Ouput according to the example?
• So if the final price for \$30 jeans was \$1000 instead of \$50 as in some super expensive brands. The increase in GDP would be \$1000 instead of \$50 even though they both juts 1 pair of jeans?
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• Yup exactly right.
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• are \$50 still added to USA's GDP for the production of the jeans even if, for example, \$10 of the value was added in China, or would then only \$40 be added to USA's GDP?
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• If restrictions are given that \$10 worth of thread was used as final consumption, what would happen then?
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• What does VALUE really mean? If I have to renovate my home not only I will pay carpenters and brickwork's and wood and bricks.. I'll also... BY LAW... have to pay government authorised technicians that will do declarations, measurements, ask for permits etc... Is this real VALUE ? I don't believe so. In my country, Italy, we have so much of these compulsory fake (I call them so) jobs that the GDP is not really measuring the country's growth. Sure... someone is getting paid... but the country ain't going anywhere. So... my question is... What is really VALUE? Who decides? If the government decides that a certification is value.. it's quite easy to ramp up GDP but this number will not really be representative of much!
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• Who really knows what VALUE really is.
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