Under the value added method, how is commission earned by a property broker in the current year on the sale of an old house treated?
Answer and explanation
Correct answer: As the value of brokerage service provided in the current year
The old house itself was produced in an earlier year, so its entire resale value is not counted again in current national output; doing so would cause double counting. However, the broker provides a new economic service in the current year. The commission is therefore included as the current year's output and value added of brokerage services. It is not a transfer payment because it is received in exchange for a service.
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What is the correct answer to this question?
As the value of brokerage service provided in the current year
Why is this the correct answer?
The old house itself was produced in an earlier year, so its entire resale value is not counted again in current national output; doing so would cause double counting. However, the broker provides a new economic service in the current year. The commission is therefore included as the current year's output and value added of brokerage services. It is not a transfer payment because it is received in exchange for a service.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Methods of calculating national income - Value Added/Product Method.
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