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Describe the methods used to calculate value added. How does value added contribute towards understanding the connections betwee - Essay Example

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Calculating Value Added Name: Tutor: Course: Date: Determination of value added and significance to product and markets Introduction To start with, the framework of value added in broad terms refers to the studies of Pigou and Bernard Cox. They suggested that determination of Value Added is crucial in calculating classical national accounts…
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Describe the methods used to calculate value added. How does value added contribute towards understanding the connections betwee
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Download file to see previous pages Therefore, outputs that are not determined by one self are not put into consideration (Sheikh, & Tonak, 2002). Marxist and neoclassical methods of determining value added B. Cox in 1979 agreed in his book called “value added” that Pigou’s definition went further in explanations. He construed value added in two diverse perspectives: the additive and the subtractive. In one, instance, the subtractive value added, is determined by taking away material purchases and services from revenue from sales. The value added signifies its creation. In addition, additive value added is deliberated by accumulation of labour cost (consisting of social charges), operating profit and depreciation. This permits the estimation methods where the created profit is distributed. Goods and services are (Samuelson, & Nordhaus, 2004) exchanged in business system; thus a market product entails a market where products are traded (especially to firms). Thus, product market and business are interrelated given that the business permits products to be traded in markets. Besides, vertical integration and value added are correlated. Indeed, if a company opts to vertical integration, its Value added ratio increases. However, many companies do not create their own products in entirety. An addition or change made by a business regarding a product or process prior to reaching the point of purchase or customer. In a situation where there is change in business value-added, there will be an increase in the quality and value of the process or products. However, the fact of the change in itself is not obvious to the customer (Palmer, 1998). The concept of Karl Marx where the value product is the same as the national accounting concept of determining net value added. It is obtained through subtracting the value of the gross product and expenditure on constant capital. The latter represents depreciation and the costs of intermediate products. In rotation, value added equals the summation of variable capital (compensation of labor) and surplus-value (which is pre-tax profit income). The case is that labor generates value added (a new value) that comprises the cost of own wages i.e. payment for the ability of workers perform labor (labor power) and property income (surplus-value). In Marx's case, provided in Das Kapital thesis, workers apply sufficient labor-time within a working day so as to pay for proliferation costs where their ability to work in that day (labor-power) is judged by the extra work or surplus-labor required to compensate incomes to land-owners and capitalists among others (Deardorff, 2003). Given that labor is active and highly conscious factor in the process of production, capital goods which is the means of production together with gifts from nature like land and natural resources, facilitates the ability of labor to transform raw materials into finished products. It raises the physical productivity of labor regarding its ability to generate use-values alongside value-productivity. The latter is the ability to generate use-values that can be traded for money (Yanovsky, 1999). On the contrary, neoclassical economics deem the incomes comprising added value as the prize for services provided. While critiquing the political economy, Marx observed incomes as consequences of production subject to circumstances of capitalist exploitation. In the capitalist class, they ...Download file to see next pagesRead More
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