Gross National Product at Factor Cost

The firm needs land, labour, capital and entrepreneur to produce goods and services. In exchange these factors receive their remuneration in the form of rent, wages, interest and profit. These payments to factors are called production cost or factor cost. From the view point of the firm it is cost, and from the view point of factors, it is their income

Gross national product at factor cost is defined as the value of all final goods and services at market price produced within the produced within the domestic territory of the country in an accounting year including net factor income from abroad minus net indirect taxes.

GNP AT FACTOR COST = GNP AT MARKET PRICE-NET INDIRECT COST

Net indirect tax is the difference between indirect tax and subsidy. Indirect tax is the tax imposed on production and sale of the commodities. While taxes increase the market price of commodities, subsidy decreases the market price. Net indirect tax is calculated by deducting subsidy from the indirect tax. GNP at factor cost is also called national disposable income.

GNP at factor cost can also be calculated in another method. GNP_PC = GDP at Factor cost+ Net factor income from abroad.