NATIONAL INCOME

AND RELATED
CONCEPTS
 Nature of goods & services produced

Economic goods & Consumer goods & Intermediate goods & Goods for self consumption
Non-economic goods Producer goods Final goods & goods for exchange
• A) Economic goods are those goods which are scarce or
limited and hence have a price,e.g., a house,a car etc.
• Non-economic goods are those goods which are a free gift of
nature, are unlimited in supply, and therefore, do not have a
price. These are also called free goods,i.e.,air,sunshine,river
water,etc.
• B) Consumer goods are those goods which directly satisfy the
consumer wants. According to time involved in consumption,
consumer goods are divided into four categories which are:
• i) Durable consumer goods
• ii) Semi-durable
• Iii) Non-durable
• Iv) Services
• Capital goods are those goods which help in further
production of other goods. These are also known as producer
goods. These are of two types:
• i) Durable & ii) Non-durable.
• C) Intermediate goods are those goods which are used in
the production of other goods or are purchased for sale.
• Final goods are those goods which are produced for their
own sake and are sold for final consumption. These are of
two types : i) Final consumer goods ii) Capital goods.
• D) Goods for self consumption are those goods which are
produced not for sale, but for self consumption.
• Goods for exchange are those goods and services which are
sold in the market.
 Treatment of goods & services in National
Income Estimation
• Economic goods are included in national income; non-
economic goods are not included.
• Goods for self consumption and goods for exchange are
included in national income.
• All consumer goods are included in national income; only
final producer goods are included in national income, and
not all producer goods.
• The intermediate goods are not included in national
incoe;only final goods are included.
 Sources of Income

Income from work or

Net factor income
Compensation of Operating surplus Mixed income
from abroad
employees
• 1) compensation of employees: Salaries or wages + Supplementary
income (income in the form of social security to workers like-life
insurance, accidental insurance, other benefits etc.) + Compensation
in kind (like free houses,car,electricity computer etc.) +
Compensation of employees in the govt. sector.
• 2) Operating Surplus is the total income earned by a firm during
the production process from property and enterprise in the form of
rent, interest and profit.
• Operating surplus = income from property
(rent,rayality,interest) + income from entrepreneurship or profit.
• 3) Mixed Income: In it we include self-employed income like small
shopkeepers, farmer working on his own land, doctor serving people
in his own clinic etc.
• 4) Net Factor Income From Abroad: It is the difference between
the factor income earned from abroad by the normal residents of a
country and income paid for the factor services rendered by non-
residents within the domestic territory of the country.
 SOME IMPORTANT RELATIONS RELATED TO
OUTPUT AND INCOME
• A) Gross Versus Net Concept:
• Net product = Gross product – Depreciation or
consumption of fixed capital).
• Gross product = Net product + Depreciation.

• B) Domestic Product Versus National Product Concept:

• National product = Domestic product + Net factor
income from abroad (NFIA).
• Domestic product = National product – NFIA.

• C) Product at Market Prices versus Product at Factor

Costs Concept:
• Product at factor costs = Product at market prices – Net
Indirect Taxes. (-indirect taxes + subsidies)
• Product at market price = Product at factor costs + Net
indirect taxes. (+indirect taxes – subsidies)
 NATIONAL INCOME AGGREGATES
• A) GDP( gross domestic product) at market price:
• GDP is defined as the sum total of money value of all final
goods and services produced in an economy during a year.
• GDP = P * Q
• Nominal GDP and Real GDP:
• Real GDP is known as GDP at constant prices.
• Nominal GDP known as GDP at current prices.
• GDPmp = NDPmp + Depreciation
• GDPmp = GDPfc + Net indirect taxes

• B) GDP at factor cost is the sum of factor cost of the gross

product attributable to the factor’s of production supplied by the
normal residents of the country during a year.
• GDPfc = NDPfc + Depreciation
• GDPfc = GNPfc – NFIA.
• GDPfc = GDPmp – Net indirect taxes
• C) GNP( gross national product or income) at market price
is defined as the market value of the final goods and
services produced in an economy during an accounting year
including NFIA.
• GNPmp = GDPmp + NFIA
• GNPmp = GNPfc + Net indirect taxes.

• D) GNP at factor cost is the sum of factor cost of the

gross product attributable to the factors of production
supplied by the normal residents of the country during a
year and net factor income from abroad.
• GNPfc = NNPfc + Depreciation
• GNPfc = GNPmp – Net indirect taxes
• GNPfc = GDPfc + NFIA
• E) NDP( net domestic product) at market price is the
market value of net output of final goods and services
produced in the domestic territory of a country by its
residents and non-residents during an accounting year.
• NDPmp = GDPmp – Depreciation.
• NDPmp = NNPmp – NFIA
• NDPmp = NDPfc + Net indirect taxes

• F) NDP(net domestic product) at factor cost is the sum of

net factor income accuring to the normal residents of the
country during a year.
• NDPfc = NNPfc - NFIA
• NDPfc = GNPfc – Depreciation
• NDPfc = NDPmp – Net indirect taxes
• G)NNP(net national product) at market price is the market
value of the net output of final goods and services produced by
an economy during an accounting year and net factor income
from abroad.
• NNPmp = NDPmp + NFIA
• NNPmp = GNPmp – Depreciation
• NNPmp = NNPfc + Net indirect taxes

• H) NNP at factor cost or National Income is the net factor

income accuring to the normal residents of the country during a
year. It is the sum of domestic factor income and NFIA.
• NNPfc = NDPfc + NFIA
• NNPfc = GNPfc – Depreciation
• NNPfc = NNPmp – Net indirect taxes
• K) Personal income is the income actually received by
persons from all sources in the form of current transfer
payments and factor income.

• Personal income = National income – undistributed profits –

corporation tax + transfer payments + dividends + interest on
national debt.

• L) Disposable Income is the income remaining with

individuals after deduction of all taxes levied against their
income and their property by the government.
•
• Disposable income = Personal income – Direct taxes paid by
households – Miscellaneous receipts of the government (i.e.,
fees and fines paid by the individuals)
•