What is the difference between GDP at market price and GDP at factor cost?

Gross domestic product (GDP) is the aggregate value of-all find goods and services produced within the domestic territory of a country during a year. GDP at market price is the money value of all domestic final gross output or product of a nation. The term domestic output refers to the output exclusively produced within the domestic territory of a country. According to Hansen “By gross domestic product we mean value of all the final goods and services produced in any given period usually in a year in the domestic territory of a country”.

In ‘order to calculate GDP at market price, all goods and services produced domestically are multiplied by their respective market prices. Thus “GDP at MP = Gross domestic product X price. Gross domestic product envelopes three types of final goods and services. They are (a) consumer goods to satisfy consumer’s wants directly (b) Capital goods viz. fixed capital formation, inventories of finished and unfinished goods and (c) Goods and services, produced by the government. GDP has certain features. They are:

(i) GDP is expressed in terms money. It is the money value of all the goods and services produced domestically in a year.

(ii) GDP takes into account on the values of final goods and services produced annually.

(iii) GDP is also called GDP at market price. The aggregate values of goods and services are calculated at market price.

(iv) GDP takes into account those goods which are brought to the market for sale. Thus it includes the goods having market values.

(v) GDP at market price never includes depreciation of capital goods in course of production.

(vi) Transfer payment like pension, maternity benefits, unemployment allowance etc. are not included in GDP since have no contribution for production of output.

Gross domestic product at factor cost includes depreciation of capital assets. If depreciation charge is added to the Net Domestic product at factor cost, it is called gross domestic product of factor cost. Thus GDP at factor cost = Net Domestic product at Factor Cost + Depreciation.