How to find GDP at market price and GDP at factor cost?, give the examples
Gross Domestic Product (GDP) is measured in two ways - at market prices and at factor cost.
To find GDP at market prices, you need to sum up the value added by each sector of the economy. This includes the value of all goods and services produced in the economy. It is calculated by adding up the total value of goods and services produced in each sector, subtracting any subsidies, and adding any indirect taxes.
For example, if the total production value of all sectors in the economy is $1,000,000, and there are $50,000 in subsidies and $10,000 in indirect taxes, then GDP at market prices would be calculated as follows:
GDP at market prices = $1,000,000 - $50,000 + $10,000 = $960,000
To find GDP at factor cost, you need to subtract indirect taxes and add subsidies from GDP at market prices. This gives a clearer picture of the actual income earned by factors of production such as labor and capital.
Continuing with the example above, if GDP at market prices is $960,000, and there are $10,000 in indirect taxes and $50,000 in subsidies, then GDP at factor cost would be calculated as follows:
GDP at factor cost = $960,000 - $10,000 + $50,000 = $1,000,000
Therefore, GDP at factor cost in this example is $1,000,000.