Name: The Public and Private Sectors in India
Uploaded: 2019-07-19
Duration: 4 min 2 s
Description: Based on the ownership and nature of economic activities, sectors are classified into public and private sectors. Learn more about them in this video.

Question

Why are only final goods and services counted while estimating the worth of various sectors of the economy?

Accepted Answer

The final goods and services are only counted in determining the GDP. The value additions of different sectors of the economy are counted. If the value of final goods and services are only included, then the value additions of all sectors will automatically be added. If the value of intermediate goods is calculated in GDP determination, then the problem of double-counting can arise. In order to escape the problem of double counting, the final goods and services are only included.

For example, there are four individuals in an economy. If A sells cotton to B, then B will make cotton yarn and sell these yarns to C. C will make the cotton cloth with the help of this yarn. Ultimately, C sells this cloth to manufacturers and then forms the cotton garments. In the end, D will sell this to the final buyers. If the values of goods of A, B, C, and D are included, then products of A will be calculated four times, products of B will be calculated three times, and the products of C will be calculated doubled. Hence, only the products provided by D should only be included in order to eradicate the double-counting problem.

Why are only final goods and services counted while estimating the worth of various sectors of the economy?

Important Questions on Sectors of the Indian Economy

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