Question

Indirect tax are deducted from NNP at market price to calculate national income because...........

Answer 1

BECAUSE ...

NNP AT FACTOR PRICES EARN INCOME FROM THE FOUR FACTORS OF PRODUCTION(LAND,LABOUR,CAPITAL,ENTREPRENEURSHIP) IN THE FORM OF RENT, WAGES, INTEREST &PROFIT.

ALL THE PROFIT EARNED IS NOT DISTRIBUTED TO THE FACTORS OF PRODUCTION. THE FIRM PAYS THE TAXES &GIVE IT THEMSELVES TO THE GOVERNMENT. THE GOVERNMENT THEN ALSO GIVES THE COST OF PRODUCTION TO THE FIRMS FOR PRODUCING CERTAIN GOODS & SERVICES.

SO BASICALLY, THE FOUR FACTORS OF PRODUCTION DONOT GET THE INCOME.

NNP AT FACTOR PRICES = NNP AT MARKET PRICES + SUBSIDIES - INDIRECT TAXES + PROFITS FROM GOVERNMENT OWNED FIRMS.