Question

Distinguish between GNP at factor cost and GNP at market price.

Differentiate Gross National Product at Market Price and at Factor Cost in detail.

Answer 1

The following represents the difference between GNP at market price and GNP at factor cost:

Net indirect business taxes are equal to the difference between the GNP at factor cost and the GNP at market price. This is thus because, when the values of the various inputs and outputs are measured at market prices, GNP at market prices is just the sum of the values added by all of the producers in the economy. When inputs and outputs are computed at factor cost, the gross national product (GNP) at factor cost is the total of the values contributed. The only distinction between the two is that net indirect taxes are equal to net indirect taxes minus subsidies, or net IBT.

Answer 2

Basis	GNP at Market Price (GNPmp)	GNP at Factor Cost (GNPfc)
Definition	Total value of final goods and services produced by the residents of a country at market prices.	Total income earned by the residents of a country from the factors of production.
Includes	Indirect taxes are net factor income from abroad.	Net factor income from abroad, subsidies.
Excludes	Subsidies	Indirect taxes
Focus	Measures the output from the consumers’ perspective.	Measures the income from the producers’ perspective.
Formula	GNPfc + Indirect Taxes − Subsidies	GNPmp − Indirect Taxes + Subsidies