concepts cleared in less than 3 steps. Four main constituents of GNP are:The Actual transacted price including indirect taxes such as GST, Customs duty etc.
We can simply categorize it as the cost of producing a product from unfinished good to a semi finished good or a finished good up to the desired output level. NNI at Factor Cost = NNI at MP plus Subsidies minus Indirect Taxes.Sometimes Governments render productive services and earn profits— these profits or surplus earned by the Governments must be deducted before we can find out Net National Income at Factor Cost because these profits do not go to factors of production in the form of incomes but are deposited in the government treasury and, therefore, must be deducted.NNI at Factor Cost – NNI at MP plus Subsidies minus Indirect Taxes and Government earned profits.Welcome to EconomicsDiscussion.net!
Ans. Firms have a choice among several possible productive combinations, and choose the one that minimizes its costs, and thus maximizes its profits. The Answer is GDP at Factor Cost. 4.
The factor cost does not include the profits made by the producing firms or industries or the tax which they incur on producing those goods and services. Anonymous March 9, 2011 Reply. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Corporate Valuation, Investment Banking, Accounting, CFA Calculator & othersCorporate Valuation, Investment Banking, Accounting, CFA Calculator & othersYou can download this National Income Formula Excel Template here – All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access Suppose handloom cloth is subsidized at the rate of 10 paise per yard and sells at 90 paise per yard. Join courses with the best schedule and enjoy fun and interactive classes. Formula For GDP: GDP = GNP - Net Foreign Income From Abroad (4) National Income at Factor Cost: Definition and Explanation: National income can be estimated in terms of either output or total income. Net indirect tax is calculated by deducting subsidy from the indirect tax. This is the market value of output, while income payments made to factors of production amount to Rs. Thus, from the money value of NNP at market price or NNI we deduct the amount of indirect taxes to arrive at the net national income at factor cost.NNP at MP – Indirect Taxes = Net National Income at Factor Cost.On the other hand, a subsidy causes the market price to be less than the factor cost. The concept of "user cost of capital" has been integrated by Crépon and Gianella. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. The phrase at factor cost is to be contrasted with the phrase at market prices.Goods produced are sold at market prices which include the indirect taxes imposed by the Government. The money value of cloth at factor cost would be equal to its market price plus the subsidies paid on it. In the short term, when the level of production is constrained by market outlets, it is the relative cost of the factors of production that is taken into account. However, it should be kept in mind that it includes the effect of inflation and as such comparison across quarters or years warrants adjustments in terms of the rate of inflation so that the national income is compared in the right way.
The concept of factor cost is focusing on the cost incurred on the factor of production. GNP at factor cost can also be calculated in another method. The Government imposes taxes worth Rs.