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Why is product tax not treated as factor income in the income method?

Answer and explanation

Correct answer: Because it is not received by a factor as payment for a productive service

A product tax is a compulsory payment collected by the government on the sale or production of a good or service. It is not a payment made to labour, land, capital, or entrepreneurship as a reward for a current productive service. The income method focuses on factor incomes such as compensation of employees, operating surplus, and mixed income. Product taxes may affect the conversion between factor cost and market price, but they are not factor income themselves. Hence, option A is correct.

Related tags

Product TaxNon-Factor IncomeIncome MethodFactor CostGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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