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: \[ \text{(I) Firm A sold goods worth ₹2,000 to Firm B and ₹1,200 to Firm C.} \\ \text{(II) Firm B sold goods worth ₹1,100 to Firm A and ₹3,500 to Firm C.} \\ \text{(III) Firm C sold to households for final consumption, goods worth ₹5,700.} \] Estimate the value of Net Domestic Product at Market Price (NDP_MP), assuming depreciation to be ₹120.

Hint:

To calculate NDP\textsubscript{MP}, add up the transactions in the economy and subtract depreciation.

Answer 1

The calculation of Net Domestic Product at Market Price (NDP_MP) involves the following steps:
1. Determine Gross Domestic Product (GDP_MP) at Market Price:
GDP_MP is the sum of all economic transactions. The calculation is: \[ \text{GDP} = \text{Value of Sales to Households} + \text{Intermediate Sales between Firms} \] Total sales to households amount to ₹5,700.
Intermediate transactions (sales between firms) total ₹7,800, comprising ₹2,000 (Firm A to Firm B) + ₹1,200 (Firm A to Firm C) + ₹1,100 (Firm B to Firm A) + ₹3,500 (Firm B to Firm C).
Consequently, GDP_MP equals ₹5,700 + ₹7,800 = ₹13,500.
2. Deduct Depreciation:
To arrive at Net Domestic Product (NDP_MP), depreciation is subtracted from GDP_MP. The formula is: NDP = GDP_MP - Depreciation
NDP_MP is calculated as ₹13,500 - ₹120 = ₹13,380.
Therefore, the Net Domestic Product at Market Price (NDP_MP) is ₹13,380 crore.