Unit 2 Macro: Value Added in Production and GDP

There are three main wealth-generating sectors of the economy – manufacturing & construction, oil & gas, farming, forestry & fishing and a wide range of service-sector industries. The value-added measure of GDP adds together the value of output produced by each of the productive sectors in the economy using the concept of value added. Value added 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

Let us say that you buy a ham and mushroom pizza from Dominos at a price of £14.99. This is the final retail price and will count as consumption. The pizza has many ingredients at different stages of the supply chain – for example tomato growers, dough, mushroom farmers and also the value created by Dominos themselves as they put the pizza together and get it to the final consumer (usually by courier!)

Some products have a low value-added, for example those really cheap tee-shirts that you might find in a supermarket for little more than £5. Or economy foods sold in bulk by the supermarket chains. These are low cost, high volume, low priced products.

Other goods and services are such that lots of value can be added as we move from sourcing the raw materials through to the final product.

Examples include designer jewellery, perfumes, meals in expensive restaurants and sports cars. And also the increasingly lucrative computer games industry.

Follow the links below for examples of products and businesses that have successfully added value to their product range