Table of Contents
- 1 Why does factor cost include subsidies?
- 2 Is subsidies a part of national income?
- 3 Why national income is calculated at factor cost?
- 4 What is national income define the factors that affect national income and methods of national income calculation?
- 5 Why is net factor income from abroad included in national income?
- 6 Why net national product at factor cost called national income?
- 7 Why are subsidies added for calculating national income?
- 8 Why are taxes and subsidies included in the cost of production?
Why does factor cost include subsidies?
Producers of goods and services incur a cost for using these factors of production. Factor cost refers to the cost of factors of production that is incurred by a firm when producing goods and services. However, subsidies received are included in the factor cost as subsidies are direct inputs into the production.
Are subsidies included in factor cost?
It includes the cost of production in the form of wages, rent, interest, input prices, profit, etc. It also includes the taxes imposed by the government and the subsidies provided by the government for the producers.
Is subsidies a part of national income?
National income includes payments to individuals (income from wages and salaries, and other income), plus payments to government (taxes), plus retained income from the corporate sector (depreciation, undistributed profits), less adjustments (subsidies, government and consumer interest, and statistical discrepancy).
How does subsidies affect national income?
Subsidies are given by the government to reduce the cost of production of goods and services. Thus while calculating national income, the net indirect taxes are subtracted, while the subsidies are added.
Why national income is calculated at factor cost?
Factor cost or national income by type of income is a measure of national income or output based on the cost of factors of production, instead of market prices. This allows the effect of any subsidy or indirect tax to be removed from the final measure. They are used to produce a given quantity of output in an economy.
What is the difference between national income at market price and national income at factor cost?
National income at market price which includes the impact of subsidies which tend to decrease and the impact on indirect taxes which tend to increase the market price. National income at factor cost will not get any impact of subsidies and indirect taxes.
What is national income define the factors that affect national income and methods of national income calculation?
National Income = Consumption (C) + Investment Expenditure (I) + Government Expenditure (G) + Net Exports (X-IM) Calculating GDP (National Income) is extremely important as the performance of the economy is fixed by means of this method.
What does it mean national income at market price?
Solution
| Basis | National income at market price (NNPMP) |
|---|---|
| 1. Definition | It refers to the total market value of all the final goods and services produced by the normal residents of a country both within the domestic territory as well as outside the country. |
Why is net factor income from abroad included in national income?
Net factor income from abroad is used to differentiate between National income and Domestic income. By adding NFIA to domestic income, we get national income.
What are the national income at market prices and national income at factor cost?
Thus, NNP at market price is gross national product at market price minus depreciation. Net National Product at factor cost is also called as national income. Net National Product at factor cost is equal to sum total of value added at factor cost or net domestic product at factor cost and net factor income from abroad.
Why net national product at factor cost called national income?
ADVERTISEMENTS: Thus, the market value of the national product exceeds the income paid to the factors of production by the amount of indirect taxes. Hence, net national income at factor cost shows the income actually received by the factors of production.
What is the national income at factor cost?
When national income is calculated with these cost of production then it is called national income at factor cost. After the production, the producer needs to pay taxes (both direct and indirect). So as a result the price of the goods increase.
Why are subsidies added for calculating national income?
Subsidies are given by the government to subsidise the excess production cost over and above realised sales value. It means that cost of production remains at actual level. Therefore subsidies are added for calculating national income. 8 clever moves when you have $1,000 in the bank.
What is factor cost in macroeconomics?
Factor cost or national income by type of income is a measure of national income or output based on the cost of factors of production, instead of market prices. This allows the effect of any subsidy or indirect tax to be removed from the final measure.
Why are taxes and subsidies included in the cost of production?
The answer to this is quickly revealed. Subsidies are given by the governments to producers (who, from the government’s viewpoint, require subsidies) so as to reduce the costs of production (factor costs). Hence, if NNP is evaluated at factor costs, taxes must be subtracted and subsidies included.
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