Is value added different in micro and macro economics?

Question

Some yahoo best answers says so.

Answer 1

The concept of Vale Added in Economics is unambigous and unique: the same concept is used throughout in all parts of Economics. Value added means the value added while converting some natural resource or intermediate good to another good. At any firm level, this value added equals the value of the output goods minus the value of the input goods used in the production of the output goods. The farmer produces $100 worth of wheat by consuming seed worth $5, water worth $25, fertilizer and pesticides worth$10. So the value added by the farmer is $100- $(5+25+10)= $60. This $60 0f value added is paid out as wages of labor, rent on land, interest on capital and the remaing as profit. The baker buys $100 worth of wheat and $10 worth of other materials and makes bread worth of $150. Bakery's value addition is $150-$100-$10= $40. This again is distributed as wages for labor, rent on land, interest on capital and profit of the bakery. This value added at each stage of production activity throughout the economy is added to get the Gross Domestic Product (GDP). You can also add all wages, rent, interest and profits distributed/ paid/ earned in the economy and you get GDP again. So, GDP is not a measure of production of industrial goods or agricultural goods or services: it is measure of value addition or income generated by the process of production or rendering service.

Many economics students fail to understand this concept.

It is important to remeber this formula:

Value of production - value of inputs (other than labor, capital/ machine, or land used on rent)= Value addition=  income earned= wages, rent, interest and profit. 0r,

Value of production +value of inputs (other than labor, capital/ machine, or land used on rent) +Value addition=  income earned= wages, rent, interest and profit

This is true for any firm. When aggregate over al firms and farms it remains true. That is why there are three methods of comuting GDP. Income method (adding all factor incomes, wages, rent, profit, interest). Product method ( addding value added by each firm/ farm or activity) and Expenditure method Value of final goods purchased for consumption or investment. After all, the value added gets distributed as Income which is spent either on consumption or investment.

Answer 2

There is no difference. Value added in micro is a firm-level concept referring to the difference between revenue and cost of goods sold. At the macro level it is an industry-level concept that refers to the difference between gross industry output and value of intermediate inputs.

Notice that they are both the same concept but typically use different language. Don't let that fool you.