Saturday 10 March 2012

PIGOU'S DEFINITION ON NATIONAL INCOME

   "National income is that part of of the objective income of the community,including of course income derived from abroad,which can be measured in money."
       Pigou's definition indicates that we must count only those things and services which are objective and which are exchanged for money.This definition is superior to marshall's definition because it is free from the difficulties implicit under marshall's definition.It is a practical definition.In spite of this fact that it is simple and comprehensive definition,it is not free from criticism.
       The limitations of this definition are as following:-
1. While calculating national income,pigou includes only those goods and services which are exchanged for money.Thus,the services which a person renders to himself,and those which he performs for the sake of his family or freinds should not be regarded as part of national dividend.Thus,the definition does not provide a correct picture of the national income of a country.
2. This definition is applicable only to developed countries of the world where barter system is not found.It cannot be used to calculate of the national income of the backward and less developed countries where the barter system still occupies an important place in the economy.

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