Question

Giving valid reasons, explain how the following would be treated while estimating

domestic income?
(i) Payment made by American tourist for goods purchased in India.
(ii) Tomatoes grown by Ms. Puja in her kitchen garden.

Answer 1

Payments by international tourists for goods purchased in a domestic market are included in that country's GDP as exports, while homegrown produce not sold on the market is generally excluded from GDP calculations unless it's a significant part of the economy.

Step-by-step explanation:

When estimating domestic income, different economic activities are treated differently.

1. For the payment made by an American tourist for goods purchased in India, this spending is part of India's exports and would contribute to India's Gross Domestic Product (GDP). It should be included in India's GDP as it represents a payment for goods that are produced domestically within India.

2. Regarding the tomatoes grown by Ms. Puja in her kitchen garden, this is an example of non-market transactions. Although they can be consumed by her household, these tomatoes do not enter the market and are not sold. In standard practice for calculating GDP, non-market transactions are not usually included, unless the produce is a significant part of the economy. However, for official estimates of domestic income, such household production might be omitted unless it contributes significantly to the country's economy.