Question

Suppose, there are only three firms in a hypothetical economy, viz. A, B, and C. During a given period of time, the following transactions were undertaken by them:
(I) Firm A sold goods worth ₹ 2,000 to Firm B and ₹ 1,200 to Firm C.
(II) Firm B sold goods worth ₹ 1,100 to Firm A and ₹ 3,500 to Firm C.
(III) Firm C sold to households for final consumption goods worth ₹ 5,700.
Estimate the value of Net Domestic Product at Market Price (NDP$_{MP}$) assuming depreciation to be ₹ 120.

Hint:

When calculating NDP$_{MP}$, ensure that you only include the value of final goods and subtract depreciation from GDP$_{MP}$.

Answer 1

To calculate the Net Domestic Product at Market Price (NDP$_{MP}$), we will use the following formula: \[ NDP_{MP} = \text{Gross Domestic Product at Market Price (GDP$_{MP}$)} - \text{Depreciation} \] Step 1: Calculate GDP$_{MP}$ GDP$_{MP}$ is the total market value of all final goods and services produced in an economy. We can calculate GDP$_{MP}$ by adding the value of final goods produced and sold:
- Firm A sold goods worth ₹ 2,000 to Firm B and ₹ 1,200 to Firm C. But these are intermediate goods, and therefore, do not count in the final GDP calculation.
- Firm B sold goods worth ₹ 1,100 to Firm A and ₹ 3,500 to Firm C. These are also intermediate goods, so they don't count in GDP$_{MP}$.
- Firm C sold goods worth ₹ 5,700 to households for final consumption. This is a final good, so we count ₹ 5,700 in GDP$_{MP}$.
Thus, the GDP$_{MP}$ is ₹ 5,700. Step 2: Subtract depreciation We are given that depreciation is ₹ 120. So, the Net Domestic Product at Market Price (NDP$_{MP}$) is: \[ NDP_{MP} = 5700 - 120 = ₹ 5,580 \] Thus, the NDP$_{MP}$ is ₹ 5,580.