Aggregates related to national income - Market price and factor cost

Correct answer: A. 4600

Explanation: To move from GDP at market price to GDP at factor cost, subtract net indirect taxes because market price includes the net tax component. Thus, GDP at factor cost = GDP at market price − NIT = 5000 − 400 = 4600. The other values result from adding the tax, making no adjustment, or reporting the tax alone rather than the converted GDP measure.

Correct answer: C. 900

Explanation: The relationship is GDP at market prices = GDP at factor cost + net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies, and they are added because market prices include the net effect of such taxes. Therefore, GDP₍MP₎ = 780 + 120 = 900. Hence option C is the only correct numerical answer.

Correct answer: A. They can make market price higher than factor cost

Explanation: Market price is the price paid by purchasers, while factor cost reflects payments to factors of production. Indirect taxes create a wedge between the two and generally raise market price above factor cost. The precise adjustment is GDP at market price = GDP at factor cost + indirect taxes − subsidies, so the effect depends on net indirect taxes.

Correct answer: B. Negative

Explanation: Net indirect taxes are defined as indirect taxes minus subsidies. When subsidies are larger than indirect taxes, the subtraction produces a negative value. This negative net indirect tax means that subsidies exceed the tax burden; consequently, when converting from market price to factor cost, subtracting NIT increases the factor-cost value.

Correct answer: B. Net indirect taxes

Explanation: The difference between market price and factor cost is created by net indirect taxes. The formula is Market Price = Factor Cost + Net Indirect Taxes, where net indirect taxes equal indirect taxes minus subsidies. Depreciation changes gross and net aggregates, while NFIA changes domestic and national measures. Therefore, option B is correct.

Correct answer: C. NDP at FC = NDP at MP − NIT

Explanation: To convert an aggregate from market price to factor cost, net indirect taxes must be subtracted because market price includes their effect. Thus, NDP at factor cost = NDP at market price − net indirect taxes. Depreciation is used to move between gross and net measures, and NFIA is used to move between domestic and national measures. Hence, option C is correct.

Correct answer: A. 800 crore rupees

Explanation: When moving from factor cost to market price, net indirect taxes are added because market prices include taxes after adjusting for subsidies. The formula is NDP at market price = NDP at factor cost + net indirect taxes. Therefore, 760 + 40 = 800 crore rupees. Hence, option A is correct.

Correct answer: C. Zero

Explanation: Net indirect taxes equal indirect taxes minus subsidies. If both amounts are equal, their difference is zero. Consequently, the adjustment between market price and factor cost due to net indirect taxes is zero, so the two valuations would be equal in this respect. Therefore, option C, zero, is correct.

Correct answer: A. 1160 crore rupees

Explanation: The governing formula is NDP at factor cost = NDP at market price − net indirect taxes. Substituting the values gives 1250 − 90 = 1160 crore rupees. Therefore, option A is correct. Option B adds the tax instead of deducting it, option C ignores the tax adjustment, and option D subtracts an incorrect amount of 180 crore rupees.

Correct answer: B. 1500 crore rupees

Explanation: The correct conversion is NDP at market price = NDP at factor cost + net indirect taxes. Therefore, NDP at market price = 1420 + 80 = 1500 crore rupees. Option B is correct. Option A subtracts the tax, option C ignores the tax adjustment, and option D adds an incorrect amount of 160 crore rupees. The calculation uses the market-price premium created by net indirect taxes.

Correct answer: A. ₹620 lakh

Explanation: To convert a net value-added measure from market price to factor cost, subtract net product taxes, defined here as product taxes minus product subsidies. Thus, NVA at factor cost = NVA at market price − net product taxes = ₹700 lakh − ₹80 lakh = ₹620 lakh. The adjustment removes the portion of market value arising from taxes rather than payments to factors of production.

Correct answer: A. The price paid by the buyer for a good or service

Explanation: Market price is the price actually paid by the purchaser for a good or service in the market. In national-income accounting, it includes the effect of indirect taxes and subsidies, so it can differ from factor cost. Therefore option A is correct. A producer’s wage is only one factor payment, a government-administered price is not the general definition, and quantity is a physical measure rather than a price.

Correct answer: A. The reward received by factors of production

Explanation: Factor cost is the total remuneration paid to the factors of production for their services. It includes wages for labour, rent for land, interest for capital and profit for entrepreneurship. Option A is therefore correct. The consumer’s final payment is market price, while an indirect tax or import price is only one component or a different concept, not the complete reward to production factors.

Correct answer: B. Net indirect taxes

Explanation: The difference between market price and factor cost is created by net indirect taxes. Net indirect taxes are calculated as indirect taxes minus subsidies, so MP = FC + NIT and FC = MP − NIT. Hence option B is correct. Direct taxes, depreciation and net factor income from abroad affect other national-income relationships, but they do not explain this specific price-cost difference.

Correct answer: A. Net indirect taxes are added

Explanation: To convert factor cost into market price, add net indirect taxes because the market price includes indirect taxes after allowing for subsidies. The formula is MP = FC + NIT. Therefore option A is correct. Depreciation changes gross and net aggregates, net factor income changes domestic and national measures, and direct taxes are not the adjustment used in this conversion.

Correct answer: B. Net indirect taxes are subtracted

Explanation: The governing identity is MP = FC + NIT. Rearranging it gives FC = MP − NIT, so net indirect taxes must be subtracted when moving from market price to factor cost. Option B is correct. Depreciation concerns gross versus net measures, exports belong to expenditure calculations, and adding both taxes and subsidies would not correctly calculate the net adjustment.

Correct answer: B. ₹400 crore

Explanation: Net indirect taxes are found by subtracting subsidies from indirect taxes: NIT = indirect taxes − subsidies = ₹500 crore − ₹100 crore = ₹400 crore. Therefore option B is correct. ₹500 crore is the gross indirect-tax amount, not the net amount. Adding the two figures would incorrectly treat a subsidy as an additional tax instead of an offset.

Correct answer: B. ₹6,500 crore

Explanation: The governing relationship is: Domestic Product at Factor Cost = Domestic Product at Market Price − Net Indirect Taxes. Substituting the given values gives ₹7,000 crore − ₹500 crore = ₹6,500 crore. Therefore, option B is correct. Option A subtracts too much, while options C and D fail to deduct the tax component required for conversion from market price to factor cost.

Correct answer: C. ₹7,100 crore

Explanation: The governing formula is: Domestic Product at Market Price = Domestic Product at Factor Cost + Net Indirect Taxes. Thus, ₹6,800 crore + ₹300 crore = ₹7,100 crore. Option C is correct because market price includes the net indirect tax component. Option A subtracts the tax, option B ignores it, and option D adds an incorrect amount.

Correct answer: A. It increases market price

Explanation: An indirect tax is imposed on goods or services and is generally included in the price paid by the buyer. Therefore, it raises the market price relative to the price received for factor services, so option A is correct. Option B describes the usual effect of a subsidy, option C ignores the tax burden, and option D is unrelated to the market-price concept.

Correct answer: B. It decreases market price

Explanation: A subsidy is financial assistance that lowers the effective cost of production or reduces the amount that consumers need to pay. Consequently, it generally lowers the market price, making option B correct. In national-income accounting, subsidies are deducted from indirect taxes to obtain net indirect taxes. Options A and C state increases that are not generally implied, while D denies the relationship.

Correct answer: C. Both will be equal

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. If the two amounts are equal, net indirect taxes become zero. Since Market Price = Factor Cost + Net Indirect Taxes, the equation becomes Market Price = Factor Cost. Therefore, option C is correct. Options A and B would require positive or negative net indirect taxes, while D ignores the accounting identity.

Correct answer: B. Factor cost

Explanation: Net indirect taxes equal indirect taxes minus subsidies. A negative value means subsidies exceed indirect taxes. Using Market Price = Factor Cost + Net Indirect Taxes, adding a negative amount makes market price lower than factor cost. Hence factor cost is generally higher, so option B is correct. Options C and D are unrelated, and A reverses the implication of a negative tax adjustment.

Correct answer: B. ₹1,000

Explanation: The governing formula is Factor Cost = Market Price − Net Indirect Taxes. Substituting the values gives ₹1,200 − ₹200 = ₹1,000. Therefore, option B is correct. Option C merely repeats the market price, option D adds the tax instead of deducting it, and option A subtracts an incorrect amount. The unit remains rupees because no other unit is specified.

Correct answer: C. ₹1,050

Explanation: The relevant identity is Market Price = Factor Cost + Net Indirect Taxes. Therefore, ₹900 + ₹150 = ₹1,050. Option C is correct because market price includes the net tax adjustment over factor cost. Option A subtracts the tax, option B leaves the tax unaccounted for, and option D adds ₹250 instead of the stated ₹150. The calculation uses the same monetary unit throughout.