What is mean by double counting ? Why should it be avoided|class 12th Economics

 What is mean by double counting ? Why should it be avoided 

This is a question from national income chapter of class 12th Economics (NCERT)

Also it was asked in cbse examination 2010 All india...

In this blog i am going to answer you this question which is very important part of national income chapter of Economics

Let's answer it...

Answer

Double counting is the counting of value of commodity more than once. it leads to the over estimation of the value of goods and services produced in a country. Thus, it is important to avoid double counting means over estimation of goods and services produced in a country.

Example:- A farmer produce one tonne of wheat and sell it in the market to a floor mill at rupees 500 then the floor mill sell it for rupees 650 to the Baker and the Baker sell the bread to the the retailer at rupees 850 and retailer sell it to the the customer at rupees 950.

 So, the value of output = ruprees 500+650+850+950 = 2950

Here, the value of wheat and the value of services of the miller and of the retailer have been counted more than once and the counting of the value of goods and services more than once is called double counting.

In fact, the value of the wheat is counted 4 times, the service of the Miller thrice and the value service by the Baker twice.

So, in order to avoid the problem of double counting we should follow value added method.

Value added method is used to estimate the total value added at each stage of production and this helps to avoid the problem of double counting.

In the above example the value added at each stage of production is 

500 production by farmer

150 service of miller

200 service of Baker

100 service of retailer

And here your answer is complete.

Thanks for reading