question_answer

Name and explain the various types of factor income

or

From the following data, calculate the Net National Product at Market Price\[(NN{{P}_{Mp}})\]by

(i) Expenditure method

(ii) Income method

S. No.	Items	(Rs.) in crores
(i)	Personal Consumption Expenditure	700
(ii)	Wages and Salaries	700
(iii)	Gross Business Fixed Investment	60
(iv)	Gross Residential Construction Investment	60
(v)	Inventory Investment	20
(vi)	Profits	100
(vii)	Government Final Consumption Expenditure	200
(viii)	Rent	50
(ix)	Exports	40
(x)	Imports	20
(xi)	Interest	40
(xii)	Net Factor Income from Abroad	\[(-)\]10
(xiii)	Depreciation	20
(xiv)	Subsidies	10
(xv)	Indirect Taxes	20
(xvi)	Mixed Income of Self -employed	140

 

Answer:

Factor incomes are broadly classified as under: (i) Compensation of Employees It includes wages and salaries in cash and facilities such as free education to children, free medical facilities, housing, free uniform, etc, employer's contribution to social security scheme and pension on retirement. (ii) Operating Surplus   It refers to income from one's property and entrepreneurship. It includes the following items: [a] Rent                                     [b] Interest [c] Profit Profit is further split into three components as under: Dividends That part of the profit which is distributed among the shareholders is called 'dividend' or 'distributed profit'. Corporate Profit Tax It is that part of the profit which is paid to the government by way of "profit tax'. Undistributed Profit It is that part of the profit which is retained by the firms for future use, particularly to meet some contingent expenses. It is also called as 'corporate savings'. (iii) Mixed Income It refers to the incomes of the self-employed persons using their own labour, land, capital and entrepreneurship to produce goods and services. These incomes are a mixture of wages, rent, interest and profit. That is why, it is called mixed income. Separate estimation of rent, interest, profit and wages is not possible owing to the fact that factors of production are not hired/purchased from the market.                                                                     Or (i) Net National Product at Market Price by Expenditure Method Gross Domestic Product at Market Price                         = Private Final Consumption Expenditure                         +Government Final Consumption Expenditure                         +Gross Domestic Capital Formation (Gross Business Fixed Investment                         +Gross Residential Construction Investment + Inventory Investment)                         +Net Exports                         \[=Rs.\,\,700+200+(60+60+20)+20=Rs.\,\,1,060\,\,crore\]             \[NN{{P}_{MP}}=GD{{P}_{MP}}+Net\,\,Factor\,\,Income\,\,from\,\,Abroad-Depreciation\]                         \[=Rs.\,\,1,060+(-10)-20=Rs.\,\,1,060-30\]                         =Rs.1,030 crore                                                   (ii) Net National Product at Market Price\[(NN{{P}_{MP}})\]by Income Method Net Domestic Product at Factor Cost             = Compensation of Employees+Operating Surplus+Mixed Income             \[=Rs.\,\,700+(100+50+40)+140=Rs.\,\,1,030\,\,crore\]             \[NN{{P}_{MP}}=ND{{P}_{FC}}\]\[NN{{P}_{MP}}=ND{{P}_{FC}}+Net\,\,Indirect\,\,Tax\,\,(Indirect\text{ }Tax-Subsidies)+Net\,\,Factor\,\,Income\,\,from\,\,Abroad\]             \[=Rs.\,\,1,030+(20-10)+(-10)\]             \[=Rs.\,\,1,030+10-10=Rs.\,\,1,030\,\,crore\]