Construction Economics
4.
The term value added is used to describe the value of a good at a particular stage of production, compared to the value of the product at the previous stage of production. This value can be measured in monetary terms and provides an alternative way to calculate the total value of the production of a commodity. The point to be emphasized here is that while the value added can be compared in terms of value of the product at the first stage of production and at its last stage of the product, that is the output itself, it can also be calculated on a step-by-step production level basis. To illustrate, suppose a production process has four stages, starting from raw materials, to usable inputs and intermediate inputs, before culminating into the final product. Let’s also assume that the raw the monetary value of the product at the four stages are 10, 17, 23 and 31 respectively. So, while the total value added is 21 (31- 0), we can also see that the series of value added at each production step is 10, 7, 6 and 8 respectively. If we add these four individual step value added, we get the same number as that of total value added (10+7+6+8 = 31). Therefore, summation of value addition at each step is equivalent to total value added. One very relevant and practical use of value addition is applied in the calculation of Gross Domestic Product (GDP), where we calculate the value addition at the economy wide level and hence, derive the total GDP.
The concept of surplus value is more abstract than value added. The surplus value can be best explained by the famous M-C-M’ mechanism of Marx (Encyclopedia Britannica, 2008). In the M-C-M’ mechanism, a certain amount of capital (in money form) is put into the production process, the monetary value of which can be indicated as M. Now, during the production process, this monetary value is converted in the form of capital and labor costs. After the production process, the commodity produced has a monetary value, which can be measure
The term value added is used to describe the value of a good at a particular stage of production, compared to the value of the product at the previous stage of production. This value can be measured in monetary terms and provides an alternative way to calculate the total value of the production of a commodity. The point to be emphasized here is that while the value added can be compared in terms of value of the product at the first stage of production and at its last stage of the product, that is the output itself, it can also be calculated on a step-by-step production level basis. To illustrate, suppose a production process has four stages, starting from raw materials, to usable inputs and intermediate inputs, before culminating into the final product. Let’s also assume that the raw the monetary value of the product at the four stages are 10, 17, 23 and 31 respectively. So, while the total value added is 21 (31- 0), we can also see that the series of value added at each production step is 10, 7, 6 and 8 respectively. If we add these four individual step value added, we get the same number as that of total value added (10+7+6+8 = 31). Therefore, summation of value addition at each step is equivalent to total value added. One very relevant and practical use of value addition is applied in the calculation of Gross Domestic Product (GDP), where we calculate the value addition at the economy wide level and hence, derive the total GDP.
The concept of surplus value is more abstract than value added. The surplus value can be best explained by the famous M-C-M’ mechanism of Marx (Encyclopedia Britannica, 2008). In the M-C-M’ mechanism, a certain amount of capital (in money form) is put into the production process, the monetary value of which can be indicated as M. Now, during the production process, this monetary value is converted in the form of capital and labor costs. After the production process, the commodity produced has a monetary value, which can be measure
References: Cheung, S.O. 1999. Critical Factors Affecting the Use of Alternative Dispute Resolution Processes in Construction. International Journal of Project Management, 17, (3). pp 189-194. Acharya, N.K, Lee,Y.D., Kim, J.K. 2006. Critical construction conflicting factors identification using analytical hierarchy process. Volume 10, Issue 3, pp 165-174. http://link.springer.com/article/10.1007%2FBF02824057?LI=true. (accessed Dec 19, 2012) Encyclopedia Britannica, 2008. The Local Multiplier Effect, Yes! Magazine. Nov 16, 2006. http://www.yesmagazine.org/issues/go-local/the-local-multiplier-effect. (accessed Dec 19, 2012). Rendahl, P. 2012. A case for balanced-budget stimulus. http://www.voxeu.org/article/time-spend-new-insights-multiplier-effect . (accessed Dec 19, 2012).