Question

Distinguish between ‘Gross National Product’ at market prices and ‘Net National Product’ at factor cost.

Answer 1

Aspect	GNP at market price	NNP at factor cost
Definition	The total market value of all final goods and services produced by the normal residents of a country, including net factor income from abroad, during an accounting year.	The net income earned by a country’s residents after accounting for depreciation and indirect taxes, including net factor income from abroad.
Includes	Value of all final goods and services produced + Net factor income from abroad.	Total factor incomes (wages, rent, interest, profit) + Net factor income from abroad − Depreciation − Net Indirect Taxes.
Excludes	Depreciation of fixed capital.	Indirect taxes and depreciation.
Formula	GNP at Market Price = GDP at Market Price + Net Factor Income from Abroad	NNP at Factor Cost = GNP at Market Price − Depreciation − Net Indirect Taxes
Purpose	Useful for understanding the overall economic size and production capacity.	More accurate for assessing the real income earned by the residents and the economy’s net production capacity.