Question

How can gross domestic product at factor cost be obtained from the gross national product at market price?

Answer 1

To calculate GDP at factor cost from GNP at market price, first subtract net factor income from abroad to get GDP at market price. Then, subtract indirect taxes and add subsidies to arrive at GDP at factor cost.

We derive the Gross Domestic Product at Factor Cost from the Gross National Product at Market Price.

1. Subtracting Net Factor Income from Abroad
2. Subtracting Indirect Taxes
3. Adding Subsidies

This gives the true value of domestic production based on actual factor earnings, excluding price distortions from taxes and subsidies.