Added Value

The definition of added value

When you purchase stock for what you are selling it comes with a set price, for example a box of 10 packets of crisps for £5.00 (this means 50p each) you would add 20p to each packet consiquently meaning you sell each packet for 70p and make £7.00 in total.

Original price including added value - Original price = profit
£7.00 - £5.00 = £2.00




The Creation of Wealth
Businesses are not only important because they provide us with our wants and needs but
in the process of using resources to provide goods and services, they add value to
those resources and create wealth.
For example, when you buy a pine table from a furniture shop, it has already gone through
a number of processes; at each stage value has been added to it, and wealth is being created
through payment to the factors of production.
Firstly the tree had to be grown and felled. This would then be taken to a saw mill where it would
be cut into planks. A furniture manufacturer would buy the timber and make a table from it
which they would sell to the retailer. The retailer would then sell the table. at each stage the money made from the production process will be used to pay the factors of production.

• If the table was sold for £500 and the furniture retailer had paid the manufacture £300, it has added £200 of value to the product. It would use some of this value added to pay the wages of the shop assistants , pay the the rent on the store, pay its heating and lighting bills and keep some of it for profit.
• The manufacturer paid the saw mill £100 for the timber, adding £200 to its value. The manufacturer will use this to pay workers' wages, various bills and make a profit.
• The saw mill bought the wood from the forestry company for £50. It use the remaining £50 to pay wages, bills and make a profit.
• It cost the foresty company £20 to grow the tree. It would use this money to pay for its factors of production.

Stage                                           Value added (£)

Forestry                                              30
Saw mill                                              50
Furniture Manufacturer                    200
Furntiture Retailer                            200