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The value a producer adds after subtracting the value of purchased intermediate inputs from its output.
In a simplified production account, subtract intermediate purchases from gross output. The resulting value helps pay employee compensation, production taxes and returns to the business. Buying a new long-lived machine is treated differently from buying an ingredient used up in this year’s production; capital investment is not generally just another intermediate input.
Suppose a furniture maker produces J$500,000 of furniture and uses J$200,000 of timber and purchased services. Its value added is J$300,000. If a timber supplier has already counted its own production, adding the furniture maker’s full J$500,000 again would repeat the timber’s value. Adding each stage’s value added avoids that double count.