national income

NATIONAL INCOME

Definition:

According to Alfred Marshall, National Income is the labour and Capital of a country, acting on its natural resources, produced annually a certain net aggregate of commodities and in materials including services of all kinds. This is the net annual income or revenue of the country or the true national dividend.

According to A.C.Pigou “ The national income dividend is that part of the objective income of the community, including, the income derived from aboard which can be measured in Money”.

Different concepts of National Income

1. Gross National Product (GNP): According to W.C. Peterson “ GNP may be defined as the current market value of all goods & services produced by the economy during an economic period”.

GNP is the aggregate money value or market value of the final goods and services produced by a country in a year before deducting the wear & tear or depreciation charges required to be provided for the replacement of worn out capital assets.

2. Net National Product (NNP): It is the agreegate market value of final goods and services produced in a country in a year after deducting depreciation charges provided for the replacement of worn out capital assets.

It should be noted that, in the competitive of the net national product depreciation charges should be deducted from the gross national product. This is necessary, because, in the process of production some capital assets are used up a part of final goods services produced has to be set apart as depreciation charges to the replacement of warm-out capital assets.

3. Gross Domestic Product (GOP): It refers to the monetary value of all the final products & services produced within the country.

It can also be defined as the GNP of the country excluding the net export earning

That is: The GNP – Income from abroad

4. Net Domestic Product (NOP): It is the net national product of the country excluding net export earnings. In other words, it is the net market value of all final goods & services produced within the country without taking into account the net export earnings.

5. Gross National Product at Factor Cost: It is the sum of the money value of incomes earned by & accruing to various factor of production in a country. It excludes indirect taxes on goods, but includes subsides.

Gross national product at factor cost= Gross national product at market prices –
Indirect taxes + Subsidies

6. National Income at Factor Cost: Net National Income at factor cost is the sum total of factors rewards, such as wages, rent, interest and profit earned by the suppliers of various factors of production for their contribution of land, labour, capital & organisation in a year.

To obtain national income at cost, Indirect taxes levied on goods should be deducted from net national product because these taxes do not go to the supplies of factors.

Subsides should be added to the net national product, because they form part of the payment for factors of production.

National income at factor cost = Net national product – Indirect taxes + subsidies

7. Gross National Product at Market Prices: Refers to the gross value of final goods and service produced annually in a country + net income from abroad.

8. Net National Product at Market prices: It is the net value of final goods and services valued at market prices.

Net national product at market prices = Gross national product at market prices – depreciation.

9. Net Domestic Product or Factor Cost: It means that national product which is made by the domestic factors of production of the country during the period of a year. It can be obtained by deducting the net Income received from abroad.

NDPat factor or Cost= NN pat factor cost – Net income from abroad.

National Income and National Welfare

Relationship between N.I. & N.W.:

People get economic welfare through the consumption of goods and services. That means the greater is the volume of consumption of goods & services, the higher is their economic welfare. The total consumption of goods and services by the people depends on the National income of the country. That means, the level of economic welfare of the community depends on the national income of the country & improvement in N.I. means more goods & services and consumption of more goods & services leads to greater economic welfare of the people of the country.

However some of the economist who differ from the opinion of economist. The Alfred Marshall, A.C. Pigue, J.R. Hicks and other. The citizens express diverse opinion about the relationship between N.I. & economic welfare. They make a distinction between economic welfare & non-economic welfare. Economic welfare can be measured, but non-economic welfare cannot be measured. They do not consider N.I. as the barometer as economic welfare. To sum up we can say that the economic welfare of the community depends upons N.I. However, N.I. is not a reliable index of economic welfare for certain reasons.

Limitations of National Income as a measure of National Welfare:

1. National Income estimate considers only those transactions which are carried through money. It does not take into A/c the portion of output especially the farm output. If the portion of output kept for self consumption is also brought to the market, the national Income will increase, though the total output in the country has not really increased. So, increase in income does not result in increase in economic welfare.
2. The N.I. at current prices cannot be a proper indicator of the economic welfare of the community. This is because if the prices changes, the N.I. also charges. But the actual production of the economy does not change. So, if the income alone increases without an increase in production, economic welfare cannot increase.
3. The per capita Income is a better index that the N.I. to measure economic welfare of a country.
4. The per capita Income also is not a foolproof index of economic welfare. This is because, if the growth of population in the country is at a higher rate than the increase it the real national income of the country, the per capita income and the economic welfare of the people will decrease.