Various Concept of National Income | GDP: Concepts and Features | GDP at Market price and Factor Cost

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Various Concept of National  Income | GDP: Concepts and Features  GDP at Market price and Factor Cost

In modern times, a number of concepts have come to be associated with the study of national income. These concepts have made the study of national income broad-based and comprehensive. Some of the important concepts of national income are explained below:


The market value of all final goods and services produced within the domestic territory of a country during a year is called gross domestic product. In order to calculate the value of the gross domestic product, all goods and services produced are multiplied by their respective prices and summed up. Symbolically,  
GDP includes only final goods and services. All the intermediate goods and services are excluded from the measurement of GDP. The term final goods and services refer to goods and services produced for final use whereas intermediate goods refer to the goods produced by one firm for use in further processing by another. There are three types of final goods and services are as follows:
1. Consumer goods and services that are used to satisfy the immediate wants of people.
2. Capital goods consisting of fixed capital formation, residential construction and inventories of finished and unfinished goods, and
3. Goods and services produced by the government.

Features of GDP

The features of GDP are as follows:

1. GDP is the monetary value of all final goods and services produced within a country. In other words, GDP is a monetary measure. There are no other ways of adding up the different types of goods and services except with their money prices.
2. GDP includes the value of only final goods and services produced in a year. The intermediate goods are excluded to avoid double counting. For accurate measurement of GDP, the goods and services must be counted only once i.e., it takes into account only final goods and services.
3. The value of final goods and services is calculated at the current market prices.
4. We must take into account only current production. That is, the sale or purchase of previously produced goods is not a part of the current GDP. They are already taken into account in the period of production. Thus the GDP is a flow and not a stock variable.
5. GDP includes only those goods which have market value and are brought in the market for sale.
6. Transfer payments like pension, unemployment allowance, etc. are not included in GDP because these payments do not contribute anyway to production.
7. GDP does not include capital gains.
8. Whether the resources are Nepalese-owned or foreign-owned does not matter. As long as the resources are located within the country, the value of the output they produce is included in Nepal’s GDP.

GDP at Market Price and Factor Cost

GDP measured at the actual market price which either the consumers or producers pay for the purchase of goods and services whether for consumption or investment is called GDP at market price. Additionally, it is the market value of all final goods and services produced in a year. The above-explained concept of GDP is at market price. On the other hand, if GDP is measured as the sum of price paid to all factors of production in form of wages, profits, interest, and rent for their contribution in production, it is known as the GDP at factor cost. In order to calculate GDP at factor cost, we have to deduct the net indirect taxes from GDP at market price. Net indirect tax is equal to indirect tax minus subsidies.

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