Check sibling questions

Market Price vs Factor Cost

Market Price (MP)

We write Definition

'Market Value of goods and services'

Example

GDP MP = Gross Market value of all final goods and services produced within Domestic Territory of a Country.

GNP MP = Gross Market value of all final goods and services produced by Normal Residents of a Country.

 

Factor Cost (FC)

We write Definition

'Money Value of goods and services'

Example

GDP FC = Gross Money value of all final goods and services produced within Domestic territory of a Country.

GNP FC = Gross Money value of all final goods and services produced by Normal Residents of a Country.

Slide30.JPG

 

Note

Domestic Income and National Income always valued at Factor Cost

Example

Domestic income is NDP FC

Net Money Value of all final goods and services produced within Domestic territory of a country.

National income is NNP FC

Net Money value of all final goods and services produced by Normal Residents of a country.

Slide31.JPG

 

How to Arrive at Factor Cost from Market Price

We reduce Net Indirect Taxes

Net Indirect taxes is (Indirect tax - Subsidy)

MARKET PRICE - NET INDIRECT TAXES = FACTOR COST

MARKET PRICE - (INDIRECT TAXES-SUBSIDY) = FACTOR COST

 

Example 1

GDP MP = 100

Indirect Tax = 20

Subsidies = 5

Find GDP FC

View Answer

How to Arrive at Market Price from Factor Cost

We add Net Indirect Taxes

Net Indirect taxes is (Indirect tax - Subsidy)

MARKET PRICE - NET INDIRECT TAXES = FACTOR COST

MARKET PRICE = FACTOR COST+NET INDIRECT TAXES

 

Example 2

GDP FC = 85

Indirect Tax = 25

Subsidies = 10

Find GDP MP

View Answer

 

Concept of Gross and Net

Both Domestic income and National Income are Valued at Net Value

Domestic income is NDP FC

Net Money Value of all final goods and services produced within Domestic territory of a country.

National income is NNP FC

Net Money value of all final goods and services produced by Normal Residents of a country.

Slide33.JPG

Slide34.JPG

Concept of Domestic and National

For all Domestic Concepts.

We mention

Goods and Services Produced in Domestic Territory

(This may be earned by Indian Citizens In India or Foreign Citizens in India)

It does not include Income of Indian Citizens working abroad)

Examples

NDP FC = Net Money Value of all final goods and services produced within Domestic territory of a country.

GDP FC = Gross Money value of all final goods and services produced within Domestic territory of a Country.

GDP MP = Gross Market value of all final goods and services produced within Domestic Territory of a Country.

NDP MP = Net market Value of all final goods and services produced within Domestic territory of a country.

 

For all National Concepts.

We mention

Goods and Services Produced

by Normal Residents of a Country

(This may be earned by Indian Citizens In India or Indian Citizens work-in abroad

(it does not include Income of Foreign Citizens in India)

Examples

GNP MP = Gross Market value of all final goods and services produced by Normal Residents of a Country.

NNP FC = Net Money value of all final goods and services produced by Normal Residents of a country.

GNP FC = Gross Money value of all final goods and services produced by Normal Residents of a Country.

NNP MP = Net Market value of all final goods and services produced by Normal Residents of a country.

Slide35.JPG

How to Get from Domestic to National?

We add Net Factor Income from Abroad (NFIA)

Domestic + NFIA =National

Domestic + (Factor Income earned from Abroad - Factor income Paid Abroad) = National

Slide36.JPG


Transcript

How to Remember Different Concepts Market Price vs Factor Cost Market Price (MP) We write Definition 'Market Value of goods and services' Example GDPMP = Gross Market value of all final goods and services produced within Domestic Territory of a Country. GNPMP = Gross Market value of all final goods and services produced by Normal Residents of a Country. Factor Cost (FC) We write Definition 'Money Value of goods and services' Example GDPFC = Gross Money value of all final goods and services produced within Domestic territory of a Country. GNPFC = Gross Money value of all final goods and services produced by Normal Residents of a Country. Market Price vs Factor Cost Market Price (MP) We write Definition ''Market Value of goods and services' Example GDPMP = Gross Market value of all final goods and services produced within Domestic Territory of a Country. GNPMP = Gross Market value of all final goods and services produced by Normal Residents of a Country. Factor Cost (FC) We write Definition ''Money Value of goods and services' Example GDPFC = Gross Money value of all final goods and services produced within Domestic territory of a Country. GNPMP = Gross Money value of all final goods and services produced by Normal Residents of a Country. Note This is used to calculate Domestic and National Income Note Domestic Income and National Income always valued at Factor Cost Example Domestic income is NDPFC Net Money Value of all final goods and services produced within Domestic territory of a country. National income is NNPFC Net Money value of all final goods and services produced by Normal Residents of a country. Domestic Income and National Income always valued at Factor Cost Market Price (MP) It is not used to calculate domestic and National Income Factor Cost (FC) Domestic income is NDPFC Net Money Value of all final goods and services produced within Domestic territory of a country. National Income is NNPFC Net Money value of all final goods and services produced by Normal Residents of a country. Note- In Factor Cost (FC) We always write Definition ‘’ Net Money Value.” How to Arrive at Factor Cost from Market Price We reduce Net Indirect Taxes Net Indirect taxes is (Indirect tax - Subsidy) MARKET PRICE - NET INDIRECT TAXES = FACTOR COST MARKET PRICE - (INDIRECT TAXES-SUBSIDY) = FACTOR COST Example 1 GDPMP = 100 Indirect Tax = 20 Subsidies = 5 Find GDPFC -a- Net Indirect Taxes = Indirect tax - Subsidies Net Indirect Taxes = 20 - 5 Net Indirect Taxes = 15 GDPFC = =GDPMP - Net Indirect taxes =100 - 15 =85 -ea- How to Arrive at Market Price from Factor Cost We add Net Indirect Taxes Net Indirect taxes is (Indirect tax - Subsidy) MARKET PRICE - NET INDIRECT TAXES = FACTOR COST MARKET PRICE = FACTOR COST+NET INDIRECT TAXES Example 2 GDPFC = 85 Indirect Tax = 25 Subsidies = 10 Find GDPMP -a- Net Indirect Taxes = Indirect tax - Subsidies Net Indirect Taxes = 20 - 5 Net Indirect Taxes = 15 GDPFC + Net Indirect taxes 85+15 =100 Find NDPMP GDPMP - Depreciation 100 - 15 = NDPMP NDPMP = 85 -ea- Concept of Gross and Net Both Domestic income and National Income are Valued at Net Value Domestic income is NDPFC Net Money Value of all final goods and services produced within Domestic territory of a country. National income is NNPFC Net Money value of all final goods and services produced by Normal Residents of a country. RELATION BETWEEN FACTOR COST AND MARKET PRICE How to Arrive at Factor Cost from Market Price We reduce Net Indirect Taxes Net Indirect taxes is (Indirect tax - Subsidy) MARKET PRICE - NET INDIRECT TAXES = FACTOR COST MARKET PRICE - (INDIRECT TAXES-SUBSIDY) = FACTOR COST How to Arrive at Factor Cost from Market Price We reduce Net Indirect Taxes Net Indirect taxes is (Indirect tax - Subsidy) MARKET PRICE - NET INDIRECT TAXES = FACTOR COST MARKET PRICE - (INDIRECT TAXES-SUBSIDY) = FACTOR COST How to Arrive at Factor Cost from Market Price We reduce Net Indirect Taxes Net Indirect taxes is (Indirect tax - Subsidy) MARKET PRICE - NET INDIRECT TAXES = FACTOR COST MARKET PRICE - (INDIRECT TAXES-SUBSIDY) = FACTOR COST Both Domestic income and National Income are Valued at Net Value Gross Value It is not used while calculating National income Net Value It is used while calculating National Income Domestic income is NDPFC Net Money Value of all final goods and services produced within Domestic territory of a country. National income is NNPFC Net Money value of all final goods and services produced by Normal Residents of a country. Note Both Domestic and National Income start with ‘Net’ Example 1 GDPMP = 100 Indirect Tax = 20 Subsidies = 5 Find GDPFC Answer Net Indirect Taxes = Indirect tax - Subsidies Net Indirect Taxes = 20 - 5 Net Indirect Taxes = 15 GDPFC = =GDPMP - Net Indirect taxes =100 - 15 =85 How to Arrive at Market Price from Factor Cost We add Net Indirect Taxes Net Indirect taxes is (Indirect tax - Subsidy) MARKET PRICE - NET INDIRECT TAXES = FACTOR COST MARKET PRICE = FACTOR COST+NET INDIRECT TAXES Example 2 GDPFC = 85 Indirect Tax = 25 Subsidies = 10 Find GDPMP Net Indirect Taxes = Indirect tax - Subsidies Net Indirect Taxes = 20 - 5 Net Indirect Taxes = 15 GDPFC + Net Indirect taxes 85+15 =100 Find NDPMP GDPMP - Depreciation 100 - 15 = NDPMP NDPMP = 85 Concept of Gross and Net Both Domestic income and National Income are Valued at Net Value Domestic income is NDPFC Net Money Value of all final goods and services produced within Domestic territory of a country. National income is NNPFC Net Money value of all final goods and services produced by Normal Residents of a country. Domestic vs. National For all Domestic Concepts. We mention Goods and Services Produced in Domestic Territory (This may be earned by Indian Citizens In India or Foreign Citizens in India) (It does not include Income of Indian Citizens working abroad) For all National Concepts. We mention Goods and Services Produced by Normal Residents of a Country (This may be earned by Indian Citizens In India or Indian Citizens work in abroad (It does not include Income of Foreign Citizens in India) Examples Domestic Income = GDPFC = Gross Money value of all final goods and services produced within Domestic territory of a Country. Examples National Income = NNPFC = Net Money value of all final goods and services produced by Normal Residents of a country. How to Get from Domestic to National? We add Net Factor Income from Abroad (NFIA) Domestic + NFIA =National Domestic + (Factor Income earned from Abroad - Factor income Paid Abroad) = National How to Get from Domestic to National? We add Net Factor Income from Abroad (NFIA) Domestic + NFIA =National Here NFIA = Factor Income earned from Abroad less Factor income Paid Abroad Example 1 GDPFC = 100 Factor income from abroad = 35 Factor income to abroad = 20 Calculate GNPFC Example 2 GDPFC = 100 Factor income from abroad = 35 Factor income to abroad = 40 Calculate GNPFC NFIA = 35 – 20 =15 NNPFC =GDPFC + NFIA =100 + 15 =115 NFIA = 35 – 40 =-5 NNPFC =GDPFC + NFIA =100 +-5 =85

CA Maninder Singh's photo - Co-founder, Teachoo

Made by

CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 12 years and a teacher from the past 16 years. He teaches Science, Economics, Accounting and English at Teachoo