Difference between the national income at factor cost and national income at market prices arises from:

🔑 Key Points
National Income
→ The difference between the national income at factor cost and national income at market prices arises from indirect taxes and subsidies.
→ Subsidies refer to the difference between the Market Price and the Cost of Production.

National Income at Factor Cost
→ Net National Product at factor cost is also called national income.
→ Net National Product at factor cost is equal to sum total of value added at factor cost or net domestic product at factor cost and net factor income from abroad.
→ NNP at Factor Cost = NNP at Market Price – Net Indirect tax.
→ Factor cost is the total cost of all the factors of production consumed or used in producing a good or service.

National Income at Market Price
→ It refers to the total market value of all the final goods and services produced by the normal residents of a country both within the domestic territory as well as outside the country.
→ National income at market price = National income at factor cost + Net indirect taxes.
→ Thus, the market value of the national product exceeds the income paid to the factors of production by the amount of indirect taxes.