(i) On the basis of the data given below, estimate the value of Gross National Product at Factor Cost (GNP_FC) : (ii) Differentiate between positive externalities and negative externalities. (i) Gauhar, has recently completed her fashion designing studies and started a boutique. To produce dresses for sale, she purchased various materials, including a sewing machine, fabric, buttons and thread. These items are essential for producing the dresses. Classify the material purchased by Gauhar as Final or Intermediate goods, giving valid reasons in support of the classifications. (ii) "In a two sector economy, National income is always more than Domestic income." Defend or refute the given statement with reasons.

Question

Accepted Answer

(i) Using Income Method:
GNP_FC = NDP_FC + NFIA = (COE + Operating Surplus + Mixed Income) + NFIA
From table, calculate using the given values.

(ii) Positive Externalities = Benefits to third parties for which no payment is received. Example: Education creates a more productive workforce.
Negative Externalities = Harms to third parties for which no penalty is imposed. Example: Pollution reduces health.

(iii) Sewing machine = Final good (capital good)
Fabric, buttons, thread = Intermediate goods (used up in production)

(iv) In a two sector economy, NFIA = 0, so National Income = Domestic Income. The statement 'National Income is always more than Domestic Income' is INCORRECT. They are equal.