Question

Explain how the following are treated in estimating national income:

Wheat grown by a farmer for self consumption.

Answer 1

Wheat grown by a farmer for self-consumption is treated as part of national income in the following way:

1. The value of goods produced for self-consumption, such as agricultural products used by farmers for their own family's consumption, is included in national income. This is because these goods represent income in kind and contribute to the current production of goods and services even though they are not sold in the market.
2. Since such goods are not sold in the market and do not have a market price, their value is estimated or imputed for the purpose of inclusion in national income. Thus, although the wheat is not sold, its imputed value is counted in national income to reflect the true output of the economy.
3. This treatment is consistent across the various methods of estimating national income (value-added method, income method, and expenditure method), where the value of self-consumed goods is included to avoid underestimating the economy's total production and income.In summary, wheat grown by a farmer for self-consumption is included in national income by imputing a value to it as it forms part of the current production and consumption within the economy, even though no market transaction occurs for it explicitly.