National Income — Economics STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsNational Income3 Marks
Question
Write short note on Net Domestic Product.
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Answer
Meaning of Net Domestic Product $(NDP):$
Net domestic product is the net production of an economy. It shows the net value of goods and services produced within the boundary of a country in a year.
During certain period, in a country, the production of goods and services made with the help of factors of production and for that period, the depreciation of factors of production is deducted from that production.
This is called Net Domestic Product.
Therefore, $NDP = GDP$ — Depreciation. During the progress of production machines, buildings, etc. depreciate over the period of time and they need repairing and replacement.
To continue production smoothly for a long period, equipments of production need replacement.
Very often machinery is not old or useless but due to introduction of new technology, they have to replaced, Replacement becomes necessary to sustain itself in the market competition.
Therefore, depreciation of equipments of production has to be deducted from $GDP$.
In short, the monetary value obtained after deducting depreciation from market value of final goods and services produced by citizen of a country or foreign citizens within the boundary of the country during a year is called Net Domestic Product.
Illustration :
Suppose for an economy $GDP$ is $Rs. 1,000$ crore. But expenses of depreciation of factor is $Rs. 100$ crore, then Net domestic product will be $Rs. 900$ crore.
Limitation :
It is difficult to find out $NDP$ exactly because depreciation of factor of production has to be deducted but it depends on the price of the machinery and is expected life and this is difficult to estimate.
The machine can be work for more or less time. The price of new machine cannot be estimated in advance.
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