Question

State the difference between NNP at factor cost and at market price.

Distinction between Net National Product (NNP) at factor cost and at market price.

Answer 1

The depreciation cost is subtracted from the GNP at market price to get the NNP at market pricing. NNP at market price − Indirect business taxes + subsidy payments = NNP at factor cost since NNP at factor cost actually implies the national income (the sum of factor income as salaries, rent, interest, and profit).

Answer 2

Aspect	NNP at Market Price	NNP at Factor Cost
Definition	The net money value of all final goods and services produced by a country’s residents in a given year, including net factor income from abroad, valued at market prices.	The sum of all factor incomes earned by a country’s residents in a given year, including net factor income from abroad, valued at the cost of production (excluding indirect taxes and including subsidies).
Formula	NNP at Market Price = GNP at Market Price − Depreciation	NNP at Factor Cost = NNP at Market Price − Indirect Taxes + Subsidies
Price basis	Calculated at market prices, which include the effects of indirect taxes and exclude subsidies.	Calculated at factor cost, which reflects only the income earned by the factors of production.
Includes	Market value of final goods and services, net of depreciation.	Factor payments like wages, rent, interest, and profit, net of depreciation, after adjusting for indirect taxes and subsidies.
Purpose	Used to measure the total value of output available in the market.	Used to measure the actual income received by the factors of production.