Product Method

Khanna Fruits produces output worth Rs. 35,000 and Sharma Juices produces output worth Rs. 40, 000. However, measuring overall economic activity by simply adding Rs. 35,000 and Rs. 40,000 would “double count” the Rs. 25,000 of oranges that Sharma Juices purchased from Khanna Fruits and processed into juice. To avoid this double counting, we sum value added rather than output: Because Sharma Juices processed oranges worth Rs. 25,000 into a product worth Rs. 40,000, Sharma Juices value added is Rs. 15,000 (40,000 – 25,000). Khanna Fruits doesn’t use any inputs purchased from other businesses, so its value added equals its revenue of Rs. 35,000. Thus total value added in the economy is Rs. 35,000 + Rs. 15,000 = Rs. 50,000