Gross Output Versus Net Output
Gross and net output are frequently confused with each other in economic discourse, insofar as the net output of a particular industry or economic sector is assumed to refer to the total sale value of its products produced during an accounting interval. This is however not the case, because the net output of a sector refers only to the value-added by that sector, equal to the factor income it generates. The total value of its output is in reality its gross output, which includes the value of materials and operating costs used to produce the output. It is only the net output of the whole economy (equal to GDP) which provides a measure of the total value of all new goods and services produced together. If, say, a car factory produces a car, the value of the car includes both labour costs, tax imposts and gross profit (its value-added, which is its contribution to GDP), but also the value of materials and services used up to make the car, which are inputs purchased from other sectors (or imported) that are used up in production. Since the inputs of one industry are the outputs of another, goods and services used up in production have to be subtracted from the grand total of output sales in the whole economy in order to obtain a grand total for the net output value in the whole economy. But at the level of an individual sector, the total value of the goods and services it produced in an accounting interval is not the net output, but the gross output.
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Famous quotes containing the words gross, output and/or net:
“How fearful
And dizzy ‘tis, to cast one’s eyes so low!
The crows and choughs that wing the midway air
Show scarce so gross as beetles. Half way down
Hangs one that gathers samphire, dreadful trade!”
—William Shakespeare (1564–1616)
“Lizzie Borden took an axe
And gave her mother forty whacks;
When she saw what she had done,
She gave her father forty-one.”
—Anonymous. Late 19th century ballad.
The quatrain refers to the famous case of Lizzie Borden, tried for the murder of her father and stepmother on Aug. 4, 1892, in Fall River, Massachusetts. Though she was found innocent, there were many who contested the verdict, occasioning a prodigious output of articles and books, including, most recently, Frank Spiering’s Lizzie (1985)
“Here’s a fish hangs in the net like a poor man’s right in the law; ‘twill hardly come out.”
—William Shakespeare (1564–1616)