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Question
Distinguish between value added at market price and value added at factor cost.
Distinguish Between
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Solution
| Basis | Value Added at Market Price | Value Added at Factor Cost | |
| 1. | Definition | The definition involves subtracting the value of intermediate goods at market prices from the value of output. | We subtract the value of intermediate goods at factor cost from the value of output. |
| 2. | Includes | Includes indirect taxes and excludes subsidies. | Excludes indirect taxes and includes subsidies. |
| 3. | Formula | Value Added at Market Price = Gross Output − Intermediate Consumption | Value Added at Factor Cost = Value Added at Market Price − Net Indirect Taxes |
| 4. | Reflects | The amount consumers pay for goods and services. | The income actually earned by the factors of production. |
| 5. | Used in National Income | Calculating GDP at market price for the expenditure method. | Calculating National Income (NNP at Factor Cost). |
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