Question

Give reason "National income at factor cost includes subsidy".

Answer 1

Factor costs are the actual payments made to the factors of production for rendering their service in the course of production. in case subsidy is provided for the same , its value must also be included to get the correct value of factor cost.

Answer 2

National income at factor cost includes subsidy as it is derived from the Gross National Product (GNP).

• National income is derived from the GNP, by allowing all the allowances for certain non-income expenses included in the GNP, such as the indirect taxes, subsidies and depreciation.
• Governments offer incentives to farmers that need the subsidies in order to reduce production costs or the factor costs.
• The national income or factor cost by the labour form is a calculation of national income and revenue based on the cost of input inputs rather than the market prices. It requires exclusion from the final measure of the impact of any tariff or indirect tax.