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.
Frequently asked questions
What is the correct answer to this question?
Because it is not received by a factor as payment for a productive service
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
