Question

Define or explain the following concepts:

1) Final goods
2) National income
3) Personal income
4) Depreciation

Answer 1

1) Final goods refer to those goods and services that are meant for final consumption by the consumers. In other words, such goods are ready for final use. This implies that they need not pass through any further stage of production i.e. no further transformation is required for these goods to make them consumable. Such goods have already crossed the boundary line of production.

2) National income is the total market value (in monetary terms) of all final goods and services produced by the firms during an accounting year. In other words, it can be defined as the aggregate of all factor incomes flowing from the firms to the households (i.e. by aggregating the rent, wages, interest and profit earned in the economy). There are three methods of measuring national income, namely: value-added/ product method, income method and expenditure method.

3) Personal Income refers to the total income actually received by an individual or household from all the sources i.e. factor incomes and current transfers.

Personal Income = Private Income – Corporate Savings – Corporate Tax

It excludes profits that the corporate retains and also excludes corporate taxes.

4) Depreciation can be described as the reduction in the value of fixed assets in use due to factors such as normal wear and tear, passage of time, technological changes, deterioration due to natural forces such as rain, weather etc.