Aggregates related to national income - Market price and factor cost

Correct answer: D. MP = FC − NIT

Explanation: The basic identity is MP = FC + NIT, where NIT means indirect taxes minus subsidies. Rearranging it gives FC = MP − NIT, and the definition of NIT confirms option C. Therefore MP = FC − NIT is incorrect because it subtracts net indirect taxes instead of adding them; option D is the required answer.

Correct answer: A. Consumer

Explanation: An indirect tax is generally imposed on a producer, seller, or supplier, but its burden can be shifted through a higher selling price. Consumers may therefore bear all or part of the tax, depending on demand and supply conditions. Hence option A is correct; the words “only” in B and C make those choices inaccurate.

Correct answer: A. To reduce production cost or consumer price

Explanation: A subsidy is financial assistance provided by the government to producers or consumers. It can lower production cost, reduce the price paid by consumers, or encourage a socially desired activity. Thus option A states the general purpose correctly. It does not directly mean increasing taxes, eliminating wages, or stopping exports, so B, C, and D are unsuitable.

Correct answer: C. ₹400 crore

Explanation: Use the identity NIT = Market Price − Factor Cost. Substituting the given values gives NIT = ₹4,500 crore − ₹4,100 crore = ₹400 crore. Therefore option C is correct. The positive result means indirect taxes exceed subsidies by ₹400 crore; the other options do not equal the observed difference between the two valuation measures.

Correct answer: B. Minus ₹200 crore

Explanation: Net indirect taxes are calculated as NIT = Market Price − Factor Cost. Therefore NIT = ₹5,000 crore − ₹5,200 crore = −₹200 crore, so option B is correct. The negative value indicates that subsidies exceed indirect taxes by ₹200 crore. Option A wrongly ignores the sign, while C and D are not the actual difference.

Correct answer: A. Net indirect taxes are subtracted

Explanation: To convert a product aggregate from market price to factor cost, subtract net indirect taxes: National Product at FC = National Product at MP − NIT. This removes the effect of taxes after considering subsidies. Hence option A is correct. Depreciation concerns gross-to-net conversion, while net factor income and net exports address different adjustments.

Correct answer: A. Net indirect taxes are added

Explanation: The conversion from factor cost to market price requires adding net indirect taxes: National Product at MP = National Product at FC + NIT. Net indirect taxes equal indirect taxes minus subsidies, so this adjustment reflects the price effect of government intervention. Therefore option A is correct; depreciation, imports, and direct taxes are not this conversion adjustment.

Correct answer: C. ₹10,700 crore

Explanation: The governing relationship is Market Price = Factor Cost + Net Indirect Taxes, where Net Indirect Taxes equal indirect taxes minus subsidies. Thus, net indirect taxes = 1,200 − 500 = ₹700 crore. Adding this adjustment to factor-cost output gives 10,000 + 700 = ₹10,700 crore. Therefore, option C is correct; option B ignores the tax adjustment, while A and D use the wrong sign or amount.

Correct answer: B. ₹11,900 crore

Explanation: To convert market price into factor cost, subtract net indirect taxes. Net indirect taxes = indirect taxes − subsidies = 900 − 300 = ₹600 crore. Therefore, factor-cost output = market-price output − net indirect taxes = 12,500 − 600 = ₹11,900 crore. Option B is correct. Option A subtracts too much, option C subtracts only the subsidy, and option D incorrectly adds the net tax.

Correct answer: B. ₹5,850 crore

Explanation: The relevant formula is Factor Cost = Market Price − Net Indirect Taxes. Substituting the given values, factor-cost output = ₹6,200 crore − ₹350 crore = ₹5,850 crore. Hence option B is correct. Option C simply repeats market price without adjustment; option A subtracts ₹700 crore, and option D adds the tax instead of subtracting it.

Correct answer: B. ₹7,250 crore

Explanation: Market Price = Factor Cost + Net Indirect Taxes. Since subsidies exceed indirect taxes by ₹150 crore, net indirect taxes are negative ₹150 crore. Therefore, market-price output = 7,400 + (−150) = ₹7,250 crore, or equivalently 7,400 − 150. Option B is correct; the negative adjustment explains why market price is below factor cost.

Correct answer: C. Net indirect taxes

Explanation: The governing relationship is factor cost = market price − net indirect taxes. Net indirect taxes are indirect taxes minus subsidies, so subtracting them removes the wedge between the buyer’s market price and the remuneration received by factors. Therefore, option C is correct. Depreciation converts gross measures to net measures, while net factor income and net exports concern other national-account adjustments.

Correct answer: C. ₹550

Explanation: When there is no subsidy, net indirect taxes equal the indirect tax of ₹50. The relationship is market price = factor cost + net indirect taxes. Therefore, market price = ₹500 + ₹50 = ₹550. Option C is correct. ₹500 ignores the tax, ₹450 subtracts it incorrectly, and ₹600 adds an amount not given in the question.

Correct answer: A. ₹75 crore

Explanation: Net indirect taxes equal indirect taxes minus subsidies. Substituting the values gives: NIT = ₹120 crore − ₹45 crore = ₹75 crore. Since taxes are greater than subsidies, the result is positive. Therefore, option A is correct. Adding the amounts gives ₹165 crore, but addition is not the definition of net indirect taxes; the subsidy must be deducted.

Correct answer: C. Negative ₹25 crore

Explanation: The governing formula is NIT = indirect taxes − subsidies. Thus, NIT = ₹35 crore − ₹60 crore = −₹25 crore. Option C is correct because subsidies exceed taxes by ₹25 crore. ₹25 crore without a negative sign misses the direction of the difference, while ₹95 crore results from addition and does not measure net indirect taxes.

Correct answer: C. ₹87

Explanation: The governing concept is the adjustment between factor cost and market price. Market price equals factor cost plus net indirect taxes. Net indirect tax = indirect tax − subsidy = ₹12 − ₹5 = ₹7. Therefore, market price = ₹80 + ₹7 = ₹87, so option C is correct. Option A subtracts the net tax, option B ignores the adjustment, and option D adds the subsidy instead of deducting it.

Correct answer: B. ₹135

Explanation: To move from market price to factor cost, subtract net indirect taxes. Net indirect tax = indirect tax − subsidy = ₹25 − ₹10 = ₹15. Thus, factor cost = market price − net indirect tax = ₹150 − ₹15 = ₹135. Option B is correct. Option A subtracts the full tax and ignores the subsidy, option C makes no adjustment, and option D increases the value instead of reducing it.

Correct answer: A. GDP_MP = GDP_FC + Indirect taxes − Subsidies

Explanation: The correct identity is GDP at market price = GDP at factor cost + net indirect taxes, where net indirect taxes are indirect taxes minus subsidies. Hence GDP_MP = GDP_FC + indirect taxes − subsidies, so option A is correct. Depreciation concerns gross and net measures, while net factor income from abroad converts domestic to national aggregates; neither belongs in this conversion.

Correct answer: A. Consumer

Explanation: In the basic national-income interpretation used here, market price is the price paid by the buyer or consumer for a final good or service. It includes the effect of indirect taxes and may be reduced by subsidies. Therefore, the consumer pays the market price, making option A correct. The government may collect taxes and producers receive revenue, but neither is the direct buyer in this question.

Correct answer: A. Payments received by factors of production

Explanation: Factor cost is governed by the income earned by the factors that participate in production. It represents the total factor payments made as wages to labour, rent to land, interest to capital, and profit to the entrepreneur. Thus, option A is correct. Consumer expenditure, imports, and government borrowing may affect the economy, but they are not themselves the complete definition of factor cost.

Correct answer: B. Indirect tax

Explanation: Market price is obtained from factor cost by accounting for net indirect taxes: market price = factor cost + indirect taxes − subsidies. Indirect taxes are imposed on goods and services and can raise the price paid by consumers. Therefore, option B is correct. Direct taxes such as income tax are charged on income and are not the tax adjustment used in this aggregate-price relationship.

Correct answer: C. Indirect tax

Explanation: Factor cost measures the rewards paid to productive factors, namely wages for labour, rent for land, interest for capital, and profit for entrepreneurship. An indirect tax is a government levy on goods or services, not a reward to a factor of production; therefore it is excluded from factor cost. Option C is correct. Wages, rent, and profit are all factor payments and are included.

Correct answer: B. Market price

Explanation: The governing identity is market price = factor cost + net indirect taxes. When net indirect taxes are positive, a positive amount is added to factor cost, so market price must be greater than factor cost. Hence option B is correct. The two values would be equal only when net indirect taxes were zero; positive taxes cannot make both values zero or make factor cost higher under this relation.

Correct answer: C. Market price and factor cost will be equal

Explanation: Use the identity market price = factor cost + net indirect taxes. If net indirect taxes are zero, the adjustment between the two valuation bases disappears: market price = factor cost + 0, so both are equal. Therefore, option C is correct. Option A requires positive net indirect taxes, option B requires a negative amount, and option D does not follow from a zero tax adjustment.

Correct answer: B. ₹250 crore

Explanation: The governing concept is net indirect taxes, which equal indirect taxes minus subsidies. Thus, net indirect taxes = ₹300 crore − ₹50 crore = ₹250 crore. Therefore, option B is correct. Option C is only the gross tax amount, while option D adds the subsidy and option A subtracts an incorrect amount. Net indirect taxes are used when converting between market price and factor cost.