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Showing posts from May, 2023

Value Added Method of Measuring National Income

As the circular flow of income explains, there is continuous flow of income from the households to the firms and from the firms to the households.  The goods and services produced by firms lead to the generation of factor incomes which are distributed among households. This factor income gets translated into expenditures when households purchase the goods and services from firms.  The expenditure provides revenue to the firms, which is used to produce goods and services. This circular flow in the economy continues. Therefore, the  national income of a country can be looked upon by three ways: through the production of goods and services, through the generation of income and through expenditure on goods and services.  This gives us three different methods of estimation:  Finding the value added during the production of goods and services in the economy also known as the Product Method or Value Added Method Finding the total income generated in the economy also known as the Income Meth

National Income Aggregates: Gross vs Net, Domestic vs National, Market Price vs Factor Cost

The Income of a nation can be denoted by different terms like Gross Domestic Product, National Income, Net National Income, Net Domestic Product etc. These terms may be used interchangeably in day-to-day conversations. Yet, they are conceptually different. Therefore, it is important to know these important concepts: 1. Residents and Non-Residents The concept of resident is different from citizenship. Governments classify people as residents and non-residents A person becomes the resident of a country for that/one year if: The person is residing in that country for a period of 182 days in a given financial year or more. The person is known as ‘ordinarily residing’ in that nation. Such a person may or may not be the citizen of that country. The person’s economic interest lies in that country, which means that the person carries out his economic activities (like consumption, production, investment etc) in that nation. The knowledge of residents and non-residents is required beca

Movement and Shift in Demand Curve

The Demand curve doesn’t always remain in the same position. It may change when there is a change in any of its underlying determinants or factors. The determinants of Demand are: -- 1.  Price of own Good (Px) 2.  Income of the Consumer (Y) 3.  Price of the Related Good (Substitute or Complementary)(Pr) 4. Tastes and Preferences of the Consumer (T) 5. Future expectations about the price of the good.(E) When any of its factors undergoes a change, the demand changes and so does the demand curve.   Movement in the Demand Curve A demand curve shows the quantity bought at different level of prices, where quantity is shown on the X-axis and price on the Y-axis, and other factors are assumed to be fixed.  So, when there is a fall in own price of the good, the quantity demanded increases. This is shown by a movement from a point A to point B on the demand curve. The movement from a point A to B in case of fall in own price is also known as extension in demand.  Similarly, when the price rises,