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To evaluate the economic performance of a country, economists calculate the production of various goods and services across different sectors. This process involves assessing quantity, value, and contribution of each product or service and summarizing the total output of each economic sector.
What Are Economic Sectors?
The economy is broadly divided into three sectors:
| Sector | Description | Examples |
| Primary Sector | Extraction of natural resources | Farming, fishing, mining |
| Secondary Sector | Manufacturing and industrial production | Factories, construction, textile mills |
| Tertiary Sector | Services that support production and daily life | Banking, retail, healthcare, education |
How to Count Goods and Services?
Economists use National Income Accounting systems such as Gross Domestic Product (GDP) to measure production. There are three main methods used:
1. Production Method (Output Method)
This method adds up the value of goods and services produced in each sector, subtracting intermediate costs.
Formula:
GDP = ∑ (Value of Output – Intermediate Consumption)
| Sector | Output (₹ Cr) | Intermediate Cost (₹ Cr) | Value Added (₹ Cr) |
|---|---|---|---|
| Agriculture | 500 | 100 | 400 |
| Manufacturing | 1000 | 600 | 400 |
| Services | 1500 | 700 | 800 |
| Total GDP | 1600 |
2. Income Method
Adds up all the incomes earned by individuals and businesses in the production of goods and services.
Formula:
GDP = Wages + Rent + Interest + Profits + Mixed Incomes
| Component | Value (₹ Cr) |
|---|---|
| Wages | 700 |
| Rent | 100 |
| Interest | 150 |
| Profits | 300 |
| Mixed Income | 350 |
| Total GDP | 1600 |
3. Expenditure Method
Measures GDP by calculating total spending on the final goods and services.
Formula:
GDP = C + I + G + (X − M)
Where:
- C = Consumption Expenditure
- I = Investment Expenditure
- G = Government Spending
- X = Exports
- M = Imports
| Component | Value (₹ Cr) |
|---|---|
| Consumption (C) | 900 |
| Investment (I) | 400 |
| Government (G) | 300 |
| Exports (X) | 200 |
| Imports (M) | 200 |
| Total GDP | 1600 |
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