Q1. [1] medium initial-understanding
A farmer sells wheat to a flour mill for ₹20/kg. The mill sells flour to a biscuit company for ₹25/kg. The biscuit company sells the finished biscuits to consumers for ₹80. Which of the following correctly represents the value that should be counted towards GDP?
(A) ₹20 + ₹25 + ₹80 = ₹125
(B) ₹80 only
(C) ₹25 + ₹80 = ₹105
(D) ₹20 + ₹80 = ₹100
- A ₹20 + ₹25 + ₹80 = ₹125
- B ₹80 only
- C ₹25 + ₹80 = ₹105
- D ₹20 + ₹80 = ₹100
Generated by claude-sonnet-4-6 · 2026-06-26 13:20 · grounding rag
Model Answer
(B) ₹80 only
GDP counts only final goods and services. Biscuits (₹80) are the final good. Wheat (₹20) and flour (₹25) are intermediate goods whose value is already included in ₹80, so counting them separately would mean double counting.
Source: Comparing the Three Sectors, Chapter 2
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Explanation
- The key concept tested is intermediate vs. final goods.
- The textbook uses this exact wheat → flour → biscuit example to explain why only final goods are counted in GDP.
- Wheat and flour are intermediate goods — they are used up in making the final product (biscuits). Their value is already embedded in ₹80.
- Counting all three would result in double counting, which GDP calculation explicitly avoids.
- Remember the definition: GDP = value of all final goods and services produced in a country in a year.