Basic Concept Of National Income Flashcards
Final Goods
Final Goods are those goods which are used either for consumption or for investment. It includes :-
1. Goods purchased by consumer households. They are meant for final consumption (like milk purchased by houshold )
2. Goods purchased by firms for capital formation of investment (like machinery purchased by a firm )
Intermediate Goods
Intermediate Goods refers to those goods which are used either for resale or for further production in the same year. It includes :-
1. Goods purchased for resale (milk purchased by a diary shop)
2. Goods used for futher production (milk used for making sweats)
Features of Intermediate Goods
- Intermediate Goods have derived demand as their demand depends upon the demand for final goods
- Value of intermediate goods is added into the value of Final Goods.
- Some durable goods like trucks, aircraft’s, vehicles purchased by the Government for military purposes are included under the category of intermediate goods as they are used to produce defense services and not for market sale.
Note 1 FG and IG
National Income includes only final goods. The intermediate goods are not included in National Income as their value are already included in final Goods
Consumption Goods
Consumption Goods refers to those goods which satisfy the wants of the consumers directly. eg:bread, buttet etc.
It can be further classified into :-
1. Durable Goods :- It refers to those goods which can be used again and again over a period of time.
2. Semi durable Goods:- Goods which can be used for a limited period of time. eg: clothes etc
3. Non - durable Goods :- Goods which are used up in a single time consumption. eg: milk, bread etc
Capital Goods
Capital Goods are those final goods which help in production of other goods and service.
Note 2 CG and CaG
The difference between consumption goods and capital goods depends upon the ultimate use of goods.For example; A machinery purchased by a houshold is a consumption good whereas if it is purchased by a firm for use in the business, then it is a capital good.
Investment
Investment refers to the addition to the capital stock of an economy
Investment are of two types
Gross Investment and Net Investment
Depreciation and how it affects Investment
Depreciation refers to a fall in the value of fixed assets due to normal wear and tear, passage of time or change in technology.
Depreciation makes the difference in Gross and Net Investments.
Gross Value = Net + Dep
Net Value = Gross - Dep
Another name of Depreciation
Consumption of fixed capital
Net Indirect Tax (NIT)
NIT refers to the difference between indirect taxes and subsidies.
NIT = Indirect Tax - Subsidies
Indirect Tax
Indirect tax refers to those taxes which are imposed by the Government on production of goods and services. eg;(GST) It increases the market price.
Subsidies
Subsidies are the economic assistance given by the government to the firms and households with a motive of general welfare. Subsidies reduces the market price of a commodity
Factor Cost
Factor Cost refers to the amount paid to factors of production for thier contribution in the production process.
Market Price
Market price refers to the price at which a product is actually sold in the market
Relation of Factor Cost, Market Price and NIT
Market Price = Factor Cost + NIT
Factor Cost = Market Price - NIT
Net Factor Income from Abroad (NFIA)
It refers to the difference between factor income received from the rest of the world and factor income paid to the rest of the world.
Therefore:
NFIA = Factor Income From Abroad - Factor Income To Abroad.
It differentiates between Domestic Income and National Income
Relation between National Income, Domestic Income and NFIA
National Income = Domestic Income + NFIA
Domestic Income = National Income - NFIA
