We find that old scooters, cars, houses, machinery, etc. In India a good number of people are engaged in household industries, in family farms and other unorganised enterprises. But there is one exception. But as they satisfy human wants and receive payments for their services, their services are included as final goods in estimating national income. Thus the volume of national income is underestimated. The one great advantage of this method is that it reveals the relative importance of the different sectors of the economy by showing their respective contributions to the national income. At stage three, the value added by the baker equals the sale price of bread less the value of flour etc.
Its calculation is shown in Tables 1, 2 and 3. It includes payments made to all resources in the form of wages, interest, rent and profits. Again, it often happens that the cost of production of a commodity to the producer is higher than a price of a similar commodity in the market. Also from the calculation point of view, there are certain receipts of money or of services and goods that are not ordinarily included in private incomes but are included in the national incomes, and vice versa. Personal Incomes: National income is not the sum of all personal incomes.
And, all the imports of the corresponding items are deducted from the value of national output to arrive at the approximate measure of national income. The following items are included in India in this: agriculture and allied services; mining; manufacturing, construction, electricity, gas and water supply; transport, communication and trade; banking and insurance, real estates and ownership of dwellings and business services; and public administration and defense and other services or government services. In measuring the national income, therefore, the net result of external transactions are adjusted to the total. A circular flow of income and expenditure exists within an economy, where factor income is earned from the production of goods and services, and the income is spent on the purchase of produced goods. These sectors generate factor incomes. Many of these self-supplied goods and services will be omitted from national income.
Out of this value added, the major portion goes in the form wages and salaries, rent, interest and profits, a small portion goes to the government as indirect taxes and the remaining amount is meant for depreciation. Wages and Salaries paid in Kind: Another problem arises with regard to wages and salaries paid in kind to the employees in the form of free food, lodging, dress and other amenities. Thus the Pigovian definition gives rise to a number of paradoxes. Expenditure Method: This method focuses on goods and services produced within the country during one year. All the services which are rendered by the doctors, teachers and clerks are included in the total out put. Price Level Changes: Firstly, price level changes create complications. Thirdly, we have to measure purchases of goods and services made in a year.
But, in actuality, there is no difference in the fundamental forms of such commodities, no matter they can be exchanged for money. Primarily there are three methods of measuring national income. They are agriculture, manufacturing, and others, consisting of the tertiary sector. All producing units are classified sector wise. Disposable Income: Factor incomes are normally recorded gross i.
This chapter onwards, we will deal with macroeconomic aspects of managerial economics. There are generally four factors of production labour, capital, land and entrepreneurship. For instance, the owner of a Maruti car sells it at a price higher than its real price and the purchaser after using it for a number of years further sells it at its actual price. It is so called because people can dispose it off as they wish. Factor incomes are those paid in exchange for factor services like wages, rent, interest etc. In fact, the market prices of most of the commodities that we buy include indirect taxes and some of them include an element of subsidy. According to product method, the total value of final goods and services produced in a country during a year is calculated at market prices.
These are money paid out for which nothing is given back to the government. Similarly, any imported component, such as raw materials, which is used in the manufacture of export goods, is also excluded. The difference between the value of material outputs and inputs at each stage of production is the value added. The Income Approach This approach uses the total flow of income earned from production of goods and services in a current period of time. The imported goods are not produced within the country and hence cannot be included in national income, but the exported goods are manufactured within the country. Income Method: Income method arrives at national income summing up of the incomes of all factors employed in production.
Introduction : National income is an uncertain term which is used interchangeably with national dividend, national output and national expenditure. Hence, the question of choice of method arises. Income received by basic factors like labor, capital, land and entrepreneurship are summed up. Exports: If we use the value added method of estimating national output, we have to include exports but exclude imported materials and services. Central, state or local governments spend a lot on their employees, police and army.