Q1. [3] deep thorough-understanding
Cotton is grown by a farmer, spun into yarn by a textile unit, and then woven into cloth sold to consumers. If the cloth sells for ₹500, the yarn was purchased for ₹300, and the cotton was purchased for ₹120, what is the GDP contribution of this entire production chain? Explain your reasoning.
Generated by claude-sonnet-4-6 · 2026-06-26 13:22 · grounding rag
Model Answer
GDP contribution = ₹500 (value of cloth, the final good only)
Reasoning:
- Cloth (₹500) is the final good — it reaches the consumer directly.
- Cotton (₹120) and yarn (₹300) are intermediate goods — they are used up in producing the final good.
- The value of cloth (₹500) already includes the value of yarn and cotton within it.
- Counting intermediate goods separately would mean counting the same value multiple times.
- Therefore, only the value of the final good (₹500) is counted in GDP.
GDP contribution of this production chain = ₹500
Source: Sectors of Economic Activities / Comparing the Three Sectors, Chapter 2
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Explanation
- The key concept here is final goods vs. intermediate goods. CBSE examiners specifically look for this distinction.
- Students often make the mistake of adding ₹120 + ₹300 + ₹500 = ₹920 — this leads to double counting, which the textbook explicitly warns against.
- The textbook uses the wheat–flour–biscuit example; this question mirrors that logic exactly. Use that parallel in your reasoning.
- Always state the GDP figure clearly at the end — examiners award marks for the correct conclusion separately.