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Gross Value Added and Gross Operating Surplus are sometimes expressed at Factor Cost, and sometimes at Basic Prices. Gross Value Added is also sometimes given at Market Prices. All of these concepts relate to whether taxes and subsidies are included.

Factor Cost is the cost of the factors of production (that is, labour, capital, land and enterprise). This is not the same as the cost the buyer pays at the till. Factor Cost is before we have deducted the subsidy the government has paid to support products and production, and before we have added the taxes on products and production, such as VAT paid to the government. 

In the Income Method estimates in National Accounts, Gross Operating Surplus is first calculated at Factor Cost. Gross Value Added at Factor Cost is then calculated as Gross Operating Surplus at Factor Cost plus Compensation of Employees.

Factor Cost can be Current Prices or Constant Price. Constant Price Factor Cost has been adjusted for inflation, while Current Price Factor Cost has not been adjusted for inflation.

The relationship between Factor Cost, Basic Prices and Market Prices is shown in the figure.

Figure: Factor Cost, Basic Prices and Market Prices

GVA at Factor Cost and Basic Prices

Read next: Basic Prices

A-Z of National Accounts

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