Distinguish between: National Income at Market Price and at Factor Price.

National income at market prices refers to a value of output and expenditure that has not been adjusted to account for indirect taxes and subsidies. Therefore, Net national product (NNP) or NI at market price= GNP- Depreciation.
•This adjustment is necessary if accurate estimates of the income paid to factors are desired.
•Deducting that part of expenditure paid in taxes, and adding on any subsidies received by firms, leaves us with national income at factor cost.

NI at factor cost=NI at market prices or NNP-Indirect taxes + Subsidies

In theory, no government intervention,
Let’s take example that local Production of cigarettes $ 80,
So here,
Market value = factor income = total cost = total value-added =$80
But if there is indirect tax or subsidies, Market value ≠ total value-added (Factor cost)
Example 1:
Market price of cigarettes = $ 80
Indirect business tax = $4
So, NI at market price = $ 84
      NI at factor cost = $ 84 - 4 =$ 80 = total value-added

Example 2:
Education in university
Total value-added in university =$140
Subsidy = $20
School fee = $120
So, NI at market price = $120
      NI at factor cost = $120 + $20 = $140 = total value-added.



Market worth = issue income = total price = total value-added =$80
But if there's indirect tax or subsidies, Market worth ≠ total value-added (Factor cost)
Example 1:
Market worth of cigarettes = $ eighty
Indirect business tax = $ four
So, NI at market worth = $ eighty four
      NI at issue price = $ eighty four - four = $ eighty = total value-added

Example 2:
Education in university
Total value-added in university =$140
Subsidy = $20
School fee = $120
So, NI at market worth = $120
      NI at issue price = $120 + $20 = $140 = total value-added.

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