Answer to Question #84679 in Microeconomics for Nandy

Question

1. Inventory change=last period's ending inventory- the current period's ending inventory.
2. Change in inventory= production of the firm during the year- sale of the firm during the year

No doubt in (1) but in (2) "production of the firm during the year- sale of the firm during the year" tells about remaining part which is unsold. How could we say unsold product is "change in inventory"?

Numerical example to this?
Gross value added (GVA) = Value of sales by the firm + Value of change in inventories – Value of intermediate goods used by the firm.

Answer 1

1).

(1) This formula illustrates the quantitative change in stocks for the current period, as well as a comparison of stocks in the current period with stocks in the previous period.

(2) This formula illustrates the change in stocks specifically in the current period, regardless of inventory balances from the previous period, a comparison of sales and production.

Thus, we understand that at the beginning of the current year, first of all, the reserves of the previous year were sold, and then new reserves of the current one were formed and sold. Thus, there is a transformation of stocks, their updating.

2).

The revenue of the clothing company in the current period is $ 20,000, the change in stocks is $ 7,000, the cost of intermediate goods used for the production of clothes is $ 15,000 GVA = 20,000 + 7,000 -15,000 = 12,000