Aggregates related to national income - Market price and factor cost

Correct answer: B. Negative 75 crore rupees

Explanation: The relationship is NDP at market price = NDP at factor cost + net indirect taxes, where net indirect taxes equal indirect taxes minus subsidies. If market-price NDP is ₹75 crore below factor-cost NDP, the difference is −₹75 crore. Therefore net indirect taxes are negative ₹75 crore, meaning subsidies exceed indirect taxes by ₹75 crore. Option B is correct.

Correct answer: A. Net indirect taxes are 175 crore rupees

Explanation: The governing relationship is NDP at market price = NDP at factor cost + net indirect taxes. Therefore, the difference between the two measures is net indirect taxes. Here, 175 crore is positive because market-price NDP is higher, so net indirect taxes equal 175 crore. Depreciation relates GDP to NDP, while NFIA relates domestic to national product.

Correct answer: B. ₹9,100 crore

Explanation: The governing conversion is NDP at market price = NDP at factor cost + net indirect taxes, where net indirect taxes equal indirect taxes minus subsidies. Since subsidies exceed indirect taxes by ₹200 crore, net indirect taxes are −₹200 crore. Thus, NDP at market price = ₹9,300 crore − ₹200 crore = ₹9,100 crore. Option B is correct; adding ₹200 crore would wrongly treat the negative adjustment as positive.

Correct answer: B. Market Price = Factor Cost + Net Indirect Taxes

Explanation: The governing conversion formula is Market Price = Factor Cost + Net Indirect Taxes. Net indirect taxes are indirect taxes minus subsidies, so they raise or lower the factor-cost value according to their sign. Depreciation is a separate adjustment used in gross and net aggregates, not in this conversion. Therefore, option B is correct; A reverses the sign and C and D use depreciation incorrectly.

Correct answer: B. Factor Cost = Market Price − Net Indirect Taxes

Explanation: The correct reverse conversion is Factor Cost = Market Price − Net Indirect Taxes. Because market price already includes the net effect of indirect taxes and subsidies, that effect must be subtracted to obtain factor cost. Depreciation changes gross and net measures, while net factor income concerns domestic and national aggregates. Hence option B is correct; the other options use the wrong adjustment.

Correct answer: C. Market price will be higher than factor cost

Explanation: When indirect taxes exceed subsidies, net indirect taxes are positive because Net Indirect Taxes = Indirect Taxes − Subsidies. The conversion equation Market Price = Factor Cost + Net Indirect Taxes then shows that market price must be higher than factor cost. Thus option C is correct. Equality would occur only when taxes and subsidies are equal; option A applies when subsidies exceed taxes.

Correct answer: C. Market price will be lower than factor cost

Explanation: If subsidies exceed indirect taxes, Net Indirect Taxes = Indirect Taxes − Subsidies becomes negative. Applying Market Price = Factor Cost + Net Indirect Taxes means the negative adjustment makes market price lower than factor cost. Therefore, option C is correct. Option A describes the opposite situation, option B reverses the effect, and option D would require taxes and subsidies to be equal.

Correct answer: C. Market price will equal factor cost

Explanation: When indirect taxes and subsidies are equal, their difference is zero: Net Indirect Taxes = Indirect Taxes − Subsidies = 0. Substituting into Market Price = Factor Cost + Net Indirect Taxes gives Market Price = Factor Cost. Therefore, option C is correct. A would require taxes to exceed subsidies, B would require subsidies to exceed taxes, and D has no basis in the conversion formula.

Correct answer: B. Price paid by the buyer for a good or service

Explanation: Market price represents the price paid by the buyer for a good or service in the market. It includes the effect of indirect taxes and subsidies, so it may differ from the amount accruing to factors of production, which is reflected by factor cost. Hence option B is correct. Option A describes factor-related receipts, while C and D refer only to particular components, not the full market price.

Correct answer: A. Remuneration received by factors of production

Explanation: Factor cost measures the total remuneration earned by the factors of production for contributing to output. It includes wages for labour, rent for land, interest for capital and profit for entrepreneurship. Therefore, option A is correct. The consumer price includes taxes and subsidies, while government tax revenue and foreign capital are not factor payments.

Correct answer: C. Indirect tax

Explanation: Factor payments are incomes received by owners of factors of production. Wages go to labour, rent goes to landowners, interest goes to capital owners and profit goes to entrepreneurs. Indirect tax is paid to the government on goods and services, so it is not remuneration for a productive factor. Hence, option C is the correct answer.

Correct answer: A. ₹740 crore

Explanation: The governing conversion is GDP at factor cost = GDP at market price − net indirect taxes. Substituting the values gives ₹800 crore − ₹60 crore = ₹740 crore. Thus option A is correct. Adding the tax would incorrectly convert factor cost into market price, while ₹800 crore ignores the adjustment and ₹860 crore uses the wrong direction.

Correct answer: C. ₹1,020 crore

Explanation: To convert GDP at factor cost into GDP at market price, add net indirect taxes. Net indirect taxes = indirect taxes − subsidies = ₹90 crore − ₹20 crore = ₹70 crore. Therefore, GDP at market price = ₹950 crore + ₹70 crore = ₹1,020 crore. Option C is correct; ignoring subsidies or adding gross taxes would give a wrong result.

Correct answer: B. Market price decreases

Explanation: A subsidy is financial support from the government that lowers the effective cost of supplying or purchasing a product. Other things being equal, this reduces the price paid in the market and lowers net indirect taxes because subsidies are deducted from indirect taxes. Hence option B is correct. A subsidy does not make factor cost zero and does not itself increase indirect tax.

Correct answer: C. Subsidies exceed indirect taxes

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies: NIT = indirect taxes − subsidies. The result is negative whenever the subsidy amount is greater than the indirect-tax amount. Therefore, option C is correct. If taxes exceed subsidies, NIT is positive; if they are equal, NIT is zero; and if both are zero, it is also zero, not negative.

Correct answer: B. ₹100 crore

Explanation: The relationship is: Market Price = Factor Cost + Net Indirect Taxes. Hence, Net Indirect Taxes = Market Price − Factor Cost = ₹1,200 crore − ₹1,100 crore = ₹100 crore. Thus, option B is correct. The other figures either use an incorrect subtraction or add the two given values, which is not the required calculation.

Correct answer: B. Net indirect taxes are negative ₹40 crore

Explanation: Use the conversion formula: Net Indirect Taxes = Market Price − Factor Cost. Therefore, NIT = ₹900 crore − ₹940 crore = −₹40 crore. Option B is correct. The negative value means subsidies exceed indirect taxes by ₹40 crore. A positive ₹40 crore would require market price to be higher than factor cost, while the difference cannot be interpreted as depreciation.

Correct answer: B. It represents income earned by factors of production

Explanation: Factor cost is the amount received by the factors of production for providing their services. It includes factor incomes such as wages, rent, interest and profit, rather than product taxes. Market price may be above or below factor cost depending on net indirect taxes, so option B is correct. It does not consist only of profit, and indirect taxes are not factor income.

Correct answer: B. It includes the effect of net indirect taxes

Explanation: Market price is the price paid by buyers for goods and services and reflects the effect of product taxes and subsidies. The relationship is Market Price = Factor Cost + Net Indirect Taxes. Therefore, option B is correct. Market price is not merely factor income, is not always equal to factor cost, and can change when indirect taxes or subsidies change.

Correct answer: A. GNP at factor cost

Explanation: Subtracting net indirect taxes changes only the valuation basis from market price to factor cost. It does not change whether the aggregate is gross or net, or whether it is domestic or national. Therefore, GNP at market price minus NIT equals GNP at factor cost, making option A correct. Depreciation would be needed to change gross into net, and net factor income from abroad would affect domestic versus national status.

Correct answer: B. NDP at market price

Explanation: Adding net indirect taxes changes the valuation from factor cost to market price: Market Price = Factor Cost + NIT. Starting with NDP at factor cost therefore gives NDP at market price. The domestic and net characteristics remain unchanged. Hence option B is correct. GDP would require adding depreciation, while NNP or GNP would require changing the domestic or national dimension.

Correct answer: A. Domestic or national status

Explanation: Converting market price into factor cost requires subtracting net indirect taxes. This alters the valuation basis and removes the combined effect of indirect taxes and subsidies, but it does not change the aggregate’s identity as domestic or national. Therefore, option A is correct. Gross or net status would also remain unchanged, although that distinction is not offered among the options.

Correct answer: B. ₹1,350 crore

Explanation: The governing relationship is GDP at factor cost = GDP at market price − net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies: ₹180 crore − ₹30 crore = ₹150 crore. Therefore, GDP at factor cost = ₹1,500 crore − ₹150 crore = ₹1,350 crore, so option B is correct. Option C subtracts only the tax and ignores the subsidy, while option D adds the adjustment instead of subtracting it.

Correct answer: C. ₹2,200 crore

Explanation: To convert NNP from factor cost to market price, add net indirect taxes. Net indirect taxes = indirect taxes − subsidies = ₹250 crore − ₹50 crore = ₹200 crore. Hence, NNP at market price = ₹2,000 crore + ₹200 crore = ₹2,200 crore. Therefore, option C is correct. Option D wrongly adds the full indirect tax without deducting the subsidy, and option B uses only the tax adjustment partially.

Correct answer: B. It is subtracted from indirect taxes

Explanation: The governing concept is net indirect tax, defined as indirect taxes minus subsidies. When factor cost is converted into market price, net indirect taxes are added: market price = factor cost + indirect taxes − subsidies. Thus, a producer subsidy is subtracted from indirect taxes, making option B correct. Depreciation concerns the loss of fixed-capital value, while factor income is a separate income concept.