Question

What conceptual problems are confronted in estimating national income?

Answer 1

National Product income has been defined as the value of the net output of goods and services in an economy. The goods and services may be tangible goods like a car, a loaf of bread, etc., or it may take an intangible form such as the service rendered by a doctor, a teacher or a barber. But it is not necessary that national product would include all such services. It is perhaps impossible to include the value of services like shaving oneself, services rendered by a mother to her children etc. in the national product because any value assigned to such services would be subjective and arbitrary. A distinction must, therefore, be drawn between the goods and services to be included and those not to be included in the national product. This can easily be accomplished by including in the national product all the marketable goods and services. This rule can be applied to any country, but its usefulness is restricted to advanced countries. It is important to realize the implications of this rule. The value of the activity of a housewife in cooking meals is not included in the national product while the value of a similar activity carried on in a restaurant or by a paid servant in a house is included.

Practically, an activity carried out within the household is classified as non-economic. But this classification makes the inter-country and inter-temporal comparisons within the same country difficult, much of the activity considered non-economic in Pakistan is treated as economic in USA, or UK. The value of the loaf baked by a Pakistani housewife, for example, is excluded from the national product while the value of a loaf of bread purchased by an American housewife is included in it.