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• April 21st, 2011
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[Economy Q] GDP at Factor cost and Market price (GDPFC & GDPMP), NNPFC,NNPMP

Continuing the previous article, GDP at Factor cost means, money value of everything produced in India, without counting Government’s role in it. i.e. indirect tax and subsidies.

Example#1: Subsidy

1 kg. Urea fertilizer’s original-price is 500 Rs.

When it reaches the local supplier, Government is giving 10% subsidy. So farmer purchases it @ (500-50)=Rs. 450

1. GDP @ Factor cost= 500 [i.e. without Government's involvement]
2. GDP @ Market price= 450 [with Government's involvement]

Example#2: Tax

Box of 10 Blank DVDs =Rs.100 +10% VAT so final M.R.P.=Rs.110

1. GDP @ Factor cost=Rs.100 (Real value of those dvds)
2. GDP@ Market price=Rs.110

How will you calculate GDPMP if GDPFC is given, & vice versa?

GDP@Market price=GDP@ Factor price+Government involvement

Now, Government involvement=+Indirect taxes-subsidies

So finally,

GDP@Market price=GDP@Factor cost+Indirect tax-subsidies

Or doing the reverse,  

GDP@Factor cost=GDP@market price-Indirect tax+subsidies

Still doubt (like I always had about everything in college)? Following table should clarify it.

GDP @ Factor Cost and Market Price for same Urea and Blank DVDs

As you can see, Factor cost= Original or real value of something.

So at marketprice, even when Government is giving subsidy, the manufacturer still receives the original price. E.g. although farmer pays Rs.450, still manufacturer gets Rs.500 so we ‘add’ subsidy when converting MP to FC.

Similarly, even when customer pays MRP of DVD is 110, the DVD-manufacturer is still getting 100 Rs. So we ‘deduct’ the indirect tax(VAT) while converting MP to FC.

Similarly

NNPFC and NNPMP

GNP = everything produced inside India + Anil Kapoor’s income from Hollywood – Gary Kirsten’s remittance to S.Africa (more here)

So, what is Net National product @ Factor cost, and @Market price.

Net = Gross minus depreciation.

So NNP=GNP minus depreciation.

And factor cost, market price, just as explained above..with and without Government intervention.

To be continued.. GDP @ Current Price and Constant Price, GDP deflator

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18 comments to [Economy Q] GDP at Factor cost and Market price (GDPFC & GDPMP), NNPFC,NNPMP

• mani

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  thanks mrunal ,economics looks really simple when you explain it so beautifully

• ajith

  Reply to this comment

  what is the difference between GDP at factor cost and GDP at basic price ?

• ritesh

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  thanks…

• zafaram

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  I do not have any words of appreciation for your work. I have always been as afraid of Economy as an Arts student is of Maths, irrespective to the level of Questions. Economy meant game over for me. The things which kept haunting me since last 3 years seems too easy to understand now. I feel pity on finding your blog so late.
  Hats off to you Sir.

• vinay kumar

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  Manny Many thanks to you to ease these topics for my understanding

• sandip

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  The table is not completely visible..Please help

  • Mrunal

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    click on the photo of that table.
    or right click on the table-> select “view image” in the menu

• kaukab

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  ..wow is the word for u sir…amazingly simple!
  hate my eco teacher.thnx again

• vivek sinha

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  Sir,
  GNP = GDP+(x-m)
  but as you said: GDP= C+I+G+(x-m).
  so, now GNP = [C + I + G + (x-m)] + [(x-m)]. Is it???
  may you please correct me sir, where i am going wrong?

  • vivek sinha

    Reply to this comment

    Or is GDP(expenditure) is GNP???

  • Ravi

    Reply to this comment

    @Vivek –

    GNP = GDP + (Product and Services by Indians in Foreign country) – (Product and Services by Foreigners in India)

    While, GDP= C+I+G+(x-m) , where x = exports , y = imports

    So, its wrong to say, GNP = GDP+(x-m)

• Wahab sule

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  What is IS-lm curve all about

• deepak

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  Dear sir,
  i read in book nd net that national income==NNP at FC
  and 3 methods to calculate national income are the methods you have given to calculate gdp.
  isnt in contradictory??
  please explain

• Raj

  Reply to this comment

  So in short, factor cost refer to the prices of products as received by producers . Market prices are the prices as paid by consumers.

• vipin Kumar chopra

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  Thanks a lot sir.7-8 months phle one of my friends told me to look for ur notes but I nevr bothered.I thogt me kar lunga apne ap but jb krne laga to dimag khrb ho gya.aj apke notes padne laga to aisa laga kya btau kese lga bas ap samjh jaye sir.thank u very much.

• raghavendra

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  Sir , i am waiting for GDP @ Current Price and Constant Price, GDP deflator article from you , could you please tell when it is available ?

  Many Thanks.

• Ayush

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  taking wheat case
  gdp by the formula=c+i+G+x-m
  =450+0+50+0-0=500=gdpfc
  so gdp at facor price equals gdp
  gdp=c+i+”G”+x-m
  govt gettin invloved here
  but we say gdpfc govt nt invloved..am confused plz explain

• [Economy] LIST of All Articles published by me to clear the basic concepts of Economy for any recruitment exam or interview « Mrunal

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