(i) On the basis of the following data, estimate the value of Net Domestic Product (NDP_FC) : (ii) “Disposition phase of circular flow of income involves flow of factor income from firms to households.” Justify the statement giving valid reason. (i) Suppose there are only three firms in an imaginary economy, viz. X, Y and Z. During a year, the following transactions took place in the economy : (I) Firm X sold goods worth Rs. 20,000 to Firm Y and Rs. 12,000 to Firm Z. (II) Firm Y sold goods worth Rs. 11,000 to Firm X and Rs. 35,000 to Firm Z. (III) Firm Z sold goods worth Rs. 57,000 to households for final consumption. On the basis of the given transactions, calculate the value of Gross Domestic Product at Market Price (GDP_MP) in the economy. (ii) Discuss the likely impact of construction of 20 new hospitals in a country on the Gross Domestic Product (GDP) and Welfare in the economy.

Question

Accepted Answer

(i) NDP_FC calculation using the given data table.

(ii) The statement is CORRECT. Disposition phase involves flow of factor income from firms to households as rent, wages, interest, and profit.

(iii) Three-firm calculation:
Firm X: Value Added = Sales to Y + Sales to Z = 20,000 + 12,000 = 32,000
Firm Y: Value Added = Sales to X + Sales to Z - Purchases from X = 11,000 + 35,000 - 20,000 = 26,000
Firm Z: Value Added = Sales to households - Purchases from X - Purchases from Y = 57,000 - 12,000 - 35,000 = 10,000

GDP_MP = 32,000 + 26,000 + 10,000 = Rs. 68,000

(iv) Impact of 20 hospitals: Increases GDCF (construction) and GFCE (operating). Positive externality: better healthcare improves welfare beyond GDP increase.