In a day, a barber collects Rs 600 from haircuts. Over the day, his equipment depreciates by Rs 40, and he pays sales tax of Rs 30. He uses no intermediate goods. What is his contribution to NNP at factor cost for the day?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs 530
Given:
Value of output (haircuts) = Rs 600
No intermediate goods
Depreciation = Rs 40
Sales tax = Rs 30
With no intermediate goods, the barber’s gross value added at market prices is his receipts. Two steps take it to NNP at factor cost.
Less depreciation: 600 − 40 = 560 (net, at market prices)
Less sales tax (an indirect tax): 560 − 30 = Rs 530
Option (3) Rs 570 — forgets the depreciation.
Option (4) Rs 560 — forgets the sales tax.
NCERT (2026-27): “Gross National Product (GNP) … If we deduct depreciation from GNP the measure of aggregate income that we obtain is called Net National Product (NNP). Thus NNP ≡ GNP – Depreciation” “2.3 Some Macroeconomic Identities It is to be noted that all these variables are evaluated at market prices. Through the expression given above, we get the value of NNP evaluated at market prices. But market price includes indirect taxes. When indirect taxes are imposed on goods and services, their prices go up. Indirect taxes accrue to the government. We have to deduct them from NNP evaluated at market prices in order to calculate that part of NNP which actually accrues to the factors of production. Similarly, there may be subsidies granted by the government on the prices of some commodities (in India petrol is heavily taxed by the government, whereas cooking gas is subsidised). So we need to add subsidies to the NNP evaluated at market prices. The measure that we obtain by doing so is called Net National Product at factor cost or National Income. Thus, NNP at factor cost ≡ National Income (NI ) ≡ NNP at market prices – (Indirect taxes – Subsidies) ≡ NNP at market prices – Net indirect taxes (Net indirect taxes ≡ Indirect taxes – Subsidies)” |