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If Indirect taxes are subtracted and subsidies are added to Net domestic product at market price we will get
- a)Net Domestic Product at Factor Cost
- b)Net National Product at Factor Cost
- c)Gross Domestic Product at Market Price
- d)Gross National Product at Market Price
Correct answer is option 'A'. Can you explain this answer?
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If Indirect taxes are subtracted and subsidies are added to Net domes...
Net Domestic Product at Factor Cost:
- According to Hanson, “Net domestic income is the income generated in the form of wages, rent, interest, and profit in the domestic territory of a country by all the producers (normal residents and non-residents) in an accounting year.”
- In the words of Peterson, “The net domestic product at factor cost is the sum total of net values added by all the producers in the domestic territory of the country during an accounting year.”
Key-Points
Constituents
(1) NDP at Factor Cost: It includes all the elements of NDP at the market price of net value added except net indirect taxes.
NDP AT FACTOR COST = NDP AS MARKET PRICE – Indirect Cases + Subsidies
Additional Information GDP at market price Gross National Product at Market price
- NET NATIONAL PRODUCT (NNP)
- Thus, NNP at market price is a gross national product at market price minus depreciation.
- GNP – Depreciation = NNP
- GNP at Market Price – Depreciation = NNP at Market Price
- NNP at Factor Cost = NNP at Market Price – Net Indirect tax
- GDP at Market Price = Value of output Produced by all producing units within the Domestic Territory – Value of Intermediate Consumption.
- GNP at Market Price = Gross Domestic Product at Market Price + Net Factor Income from Abroad
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If Indirect taxes are subtracted and subsidies are added to Net domes...
Net Domestic Product at Factor Cost
Net Domestic Product (NDP) is a measure of the total value of all final goods and services produced within a country's borders during a specific time period. It is calculated by subtracting depreciation (or the value of capital consumed in the production process) from the Gross Domestic Product (GDP).
Factor cost refers to the cost incurred by the factors of production in the production process. It includes the cost of labor, capital, and other inputs used to produce goods and services.
Indirect Taxes
Indirect taxes are taxes imposed on the production or sale of goods and services. Examples of indirect taxes include value-added tax (VAT), excise duties, and sales tax. These taxes are levied on producers but are ultimately passed on to consumers in the form of higher prices.
Subsidies
Subsidies, on the other hand, are financial assistance provided by the government to businesses or individuals to support certain activities or sectors. Subsidies are usually given to promote economic growth, encourage production, or provide assistance to specific industries. They help reduce the cost of production for businesses and can lead to lower prices for consumers.
Calculation of Net Domestic Product at Factor Cost
To calculate Net Domestic Product at Factor Cost, we need to adjust the Net Domestic Product at Market Price (NDPmp) by subtracting indirect taxes and adding subsidies.
NDPmp is the value of all final goods and services produced within a country's borders, including indirect taxes, at market prices.
By subtracting indirect taxes, we are removing the taxes that have been incorporated into the market prices of goods and services. This adjustment helps us arrive at a measure that reflects the actual production value without the impact of indirect taxes.
Similarly, by adding subsidies, we are including the financial assistance given by the government to businesses or individuals. This adjustment helps us account for the subsidies that have been provided to reduce the production cost.
The result of subtracting indirect taxes and adding subsidies to NDPmp is Net Domestic Product at Factor Cost (NDPfc). NDPfc represents the value of all final goods and services produced within a country's borders, after adjusting for indirect taxes and subsidies, and at the cost incurred by the factors of production.
Therefore, the correct answer is option 'A' - Net Domestic Product at Factor Cost.
Net Domestic Product (NDP) is a measure of the total value of all final goods and services produced within a country's borders during a specific time period. It is calculated by subtracting depreciation (or the value of capital consumed in the production process) from the Gross Domestic Product (GDP).
Factor cost refers to the cost incurred by the factors of production in the production process. It includes the cost of labor, capital, and other inputs used to produce goods and services.
Indirect Taxes
Indirect taxes are taxes imposed on the production or sale of goods and services. Examples of indirect taxes include value-added tax (VAT), excise duties, and sales tax. These taxes are levied on producers but are ultimately passed on to consumers in the form of higher prices.
Subsidies
Subsidies, on the other hand, are financial assistance provided by the government to businesses or individuals to support certain activities or sectors. Subsidies are usually given to promote economic growth, encourage production, or provide assistance to specific industries. They help reduce the cost of production for businesses and can lead to lower prices for consumers.
Calculation of Net Domestic Product at Factor Cost
To calculate Net Domestic Product at Factor Cost, we need to adjust the Net Domestic Product at Market Price (NDPmp) by subtracting indirect taxes and adding subsidies.
NDPmp is the value of all final goods and services produced within a country's borders, including indirect taxes, at market prices.
By subtracting indirect taxes, we are removing the taxes that have been incorporated into the market prices of goods and services. This adjustment helps us arrive at a measure that reflects the actual production value without the impact of indirect taxes.
Similarly, by adding subsidies, we are including the financial assistance given by the government to businesses or individuals. This adjustment helps us account for the subsidies that have been provided to reduce the production cost.
The result of subtracting indirect taxes and adding subsidies to NDPmp is Net Domestic Product at Factor Cost (NDPfc). NDPfc represents the value of all final goods and services produced within a country's borders, after adjusting for indirect taxes and subsidies, and at the cost incurred by the factors of production.
Therefore, the correct answer is option 'A' - Net Domestic Product at Factor Cost.
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If Indirect taxes are subtracted and subsidies are added to Net domestic product at market price we will geta)Net Domestic Product at Factor Costb)Net National Product at Factor Costc)Gross Domestic Product at Market Priced)Gross National Product at Market PriceCorrect answer is option 'A'. Can you explain this answer?
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