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National Income — Economics STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsNational Income5 Marks
Question
Define double counting and discuss remedies to remove double counting.
✓

Answer

  • Introduction :
  • National income is an important measuring rod of economic Progress in any country.
  • National income is the result of flow of measuring income and expenditure in any country. The summation of total income of four factors of production which they earn by production.
  • In this situation, it is necessary that counting of value of goods is not done more than one time.
  • If it is done more than one time then it is called double counting and it is necessary to remove that double counting while calculating national income.
  • Meaning of Double Counting :
  • When value of goods and services is calculated for more than one time while measuring national income it is called double counting.
  • If this happens then the value of National product is artificially more.
  • It means that we can't know about the actual information of national income.
  • E.g. Jute and sacking from jute.
  • If we calculate the value of jute and Sacking of jute independently and then total it then it is double counting.
  • Because in value of sacking of jute, value of jute as a raw material is included.
  • Remedies to remove Double Counting :
  • National income is a monetary measurement, so all the goods and services are measured in money.
  • There are two steps to find out the monetary value of goods or services.
      • To count the value of finished goods only :
        • Production and sales of goods is done in different stages.
        • In this situation instead of counting the value of goods having half - made interim use, if the monetary value of machine which is the finished goods as the value of iron is already considered in it, so the problem of double counting can be solved easily.
      • Value of Added Method :
        • In the production process, when the production of goods goes from one stage to another stage at that time its monetary value increase.
        • If this increase value is drawn out and added in national product then the problem of double counting will not arise.
  • Illustration :
      • Suppose the milk producer produce the milk.
      • Milk is used to make pulp and pulp is used to make sweets.
      • This sweets are sold to the customer.
      • At this time, the market value of milk or pulp is not be calculated, because in the value of sweets, milk and pulp value is added.
Stages of Production Sales Value of Sweets
(in Rs.)		 Value Added
(in Rs.)
Producer of Milk $20$ $20$
Producer of Pulp $30$ $10$
Producer of Sweets $50$ $20$
Total $100$ $50$
      • In above illustration, total sales value up to making sweets is $Rs. 100$ and added value is $Rs. 50.$
      • Customer paid $Rs. 50$ for sweets in which, value added is done at each stage. i.e. value of milk $Rs. 20\ +$ value added while make pulp from milk is $Rs. 10. (30-20)\ +$ value added while making sweets from pulp is $Rs. 20 (50 - 30) = Rs. 50$ is considered as market value of sweets.
  • Conclusion :
  • Thus, in national product, double counting of milk, pulp and sweet $Rs. 100$ is calculated but if we consider value added at each stage then final goods as sweet at value of $Rs. 50$ and we can remove the double counting.

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