How to Remember Different Concepts

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