Correct Option (C):
National Income is conventionally defined as Net National Product (NNP) at factor cost. To derive NNP at factor cost from Gross National Product (GNP) at market prices, the following adjustments are made:
- Depreciation is subtracted from GNP to convert it from a 'Gross' measure to a 'Net' measure.
- Indirect taxes are subtracted, and subsidies are added, to convert the valuation from 'market prices' to 'factor cost'. Market prices include indirect taxes and exclude subsidies, while factor cost reflects the actual income received by factors of production.
Therefore, National Income (NNP at factor cost) = GNP at market prices - Depreciation - Indirect Taxes + Subsidies.
Incorrect Options:
Option 1: Gross National Product at market prices minus depreciation
- This calculation yields Net National Product (NNP) at market prices, not National Income (NNP at factor cost). It does not account for the adjustment from market prices to factor cost (i.e., indirect taxes and subsidies).
Option 2: Gross National Product at market prices minus depreciation plus net factor income from abroad
- Gross National Product (GNP) already includes Net Factor Income from Abroad (NFIA). Adding NFIA again would result in double-counting.
- Furthermore, this option fails to adjust for indirect taxes and subsidies to arrive at factor cost.
Option 4: Gross National Product at market prices minus net factor income from abroad
- Subtracting Net Factor Income from Abroad (NFIA) from Gross National Product (GNP) at market prices would yield Gross Domestic Product (GDP) at market prices, assuming no other adjustments.
- This option incorrectly removes NFIA, which is a component of national income, and also does not account for depreciation or the adjustment from market prices to factor cost.