The four factors of production such as- land, labor, capital and organization in a country produce a certain volume of goods and services every year. The sum total of these goods and services is called national income.There are many conceptual problems in measuring national income. Some of them are described below:
Conceptual problems in measuring national income
1. Non-Monetized sector : Some of the goods produced are not sold for money. The producer himself may consume a part of the output. Sometimes, goods are exchanged for goods. Those goods that are not exchanged for money should be taken into National Income. But it is difficult to estimate and measure the value of output which does not enter into market for sale. In the economically backward countries, there is a large non-monetized sector. So, this problem is more difficult in the backward countries.
2. Estimation of services : While estimating the value of services it is difficult to estimate the values of services rendered by mothers or house-wives to the family.
3. Statistical data : Because of illiteracy many producers do not maintain proper accounts regarding output, income and expenditure. Hence, there is no accurate and reliable information.
4. Calculation of incomes : In underdeveloped countries, people are not specialized in a particular occupation. They work in one occupation at one season and another occupation in another season. Hence it is difficult to calculate the national income.
5. Lack of information: There is a general lack of adequate statistical data and this makes the task of estimation more difficult.
6. Calculation of depreciation: The calculation of depreciation on capital goods in another problem. Unless correct deductions are made for depreciation from G.N.P (Gross National Product), the estimate of N.N.P (Net National Product) is bound to go wrong.
7. Double counting: While calculating the National Income, we have to take only the value of finished goods into account, but it is difficult to find out which is final product and which is intermediate good. Hence, we may commit double counting in the estimation of national income.
8. Calculation of Expenditure : The application of the expenditure method too is full of difficulties. It is difficult
to estimate all consumption as well as investment expenditure.
9. Transfer payments: While measuring national income through income method, transfer payments should not be included. What should be considered as transfer payment is another conceptual problems in measuring national income.
