Aggregates related to national income - Market price and factor cost

Correct answer: A. Increase in indirect taxes with unchanged subsidy

Explanation: The gap between market price and factor cost equals net indirect taxes: market price − factor cost = indirect taxes − subsidies. If indirect taxes rise while the subsidy remains unchanged, net indirect taxes increase, so the gap widens. Therefore, option A is correct. A higher subsidy narrows the gap, equal changes in tax and subsidy leave the net amount unchanged, and wages are factor payments rather than this price adjustment.

Correct answer: B. Increase in subsidies

Explanation: A positive gap exists when net indirect taxes are positive, because market price − factor cost = indirect taxes − subsidies. Increasing subsidies while indirect taxes are otherwise unchanged lowers net indirect taxes, so the positive gap becomes smaller. Therefore, option B is correct. Higher indirect taxes and lower subsidies widen the gap, whereas increased production alone does not determine this tax-subsidy difference.

Correct answer: C. Market price and factor cost are equal

Explanation: Net indirect taxes equal indirect taxes minus subsidies. If this net amount is zero, the conversion formula gives market price − factor cost = 0, so market price and factor cost must be equal. Therefore, option C is correct. Indirect taxes and subsidies need not each be zero; they may both be positive and equal. National income can clearly be positive, so option D does not follow.

Correct answer: A. Income earned by factors within the domestic territory

Explanation: GDP at factor cost measures the income generated by factors of production within a country’s domestic territory. It reflects compensation to labour, rent, interest and profit, while excluding net indirect taxes because those are price adjustments rather than factor earnings. Thus, option A is correct. Foreign factor income belongs to a national, not purely domestic, measure; indirect tax revenue and consumer expenditure are not factor income.

Correct answer: A. Decrease in net indirect taxes

Explanation: The relationship is GDP at factor cost = GDP at market price − net indirect taxes. If GDP at market price remains fixed and net indirect taxes decrease, the amount subtracted becomes smaller, so GDP at factor cost rises. Therefore, option A is correct. An increase in net indirect taxes would lower factor-cost GDP, depreciation changes a gross-net measure rather than this conversion, and net factor income from abroad affects national income, not GDP.

Correct answer: B. It will decrease

Explanation: The governing relation is GDP at market price = GDP at factor cost + indirect taxes − subsidies. Since factor-cost GDP and indirect taxes are unchanged, a rise in subsidies reduces net indirect taxes. Therefore, GDP at market price falls, making option B correct. Option C would be possible only if subsidies also remained unchanged; options A and D reverse or misstate the effect.

Correct answer: C. ₹70 crore

Explanation: Use GDP_MP = GDP_FC + indirect taxes − subsidies. Hence net indirect taxes = 700 − 650 = ₹50 crore. Because net indirect taxes equal indirect taxes minus subsidies, indirect taxes = 50 + 20 = ₹70 crore. Thus option C is correct. Option B is only the net indirect tax amount, while the other values do not satisfy the stated identity.

Correct answer: B. ₹50 crore

Explanation: The difference between market price and factor cost equals net indirect taxes: GDP_MP − GDP_FC = indirect taxes − subsidies. Therefore, 90 = 140 − subsidies, so subsidies = 140 − 90 = ₹50 crore. Option B is correct. ₹90 crore is the net indirect tax amount, whereas ₹230 crore incorrectly adds taxes and the given difference instead of finding their difference.

Correct answer: A. ₹470 crore

Explanation: The governing formula is market price = factor cost + net indirect taxes. Here net indirect taxes are −₹30 crore, so GDP at market price = ₹500 + (−₹30) = ₹470 crore. Therefore option A is correct. A negative net indirect tax means subsidies exceed indirect taxes, causing market price to be lower than factor cost; ₹530 crore would result from wrongly adding the absolute value.

Correct answer: C. They are not used in this conversion

Explanation: Conversion between market price and factor cost uses net indirect taxes, defined as indirect taxes minus subsidies. Direct taxes are not included in this adjustment because they do not represent taxes on the prices of goods and services in the relevant identity. Therefore option C is correct. Options A and B confuse direct taxes with indirect taxes, while option D wrongly treats a tax as a subsidy.

Correct answer: C. Gap will remain unchanged

Explanation: The gap between market price and factor cost equals net indirect taxes, which are indirect taxes minus subsidies. The change in the gap is therefore +₹20 crore − +₹20 crore = ₹0. Since both components rise equally, net indirect taxes and the gap remain unchanged. Option C is correct; options A, B and D ignore the offsetting effect of the subsidy increase.

Correct answer: A. Increase of ₹6 crore

Explanation: Net indirect taxes equal indirect taxes minus subsidies. The change is therefore ΔNIT = Δindirect taxes − Δsubsidies = ₹10 crore − ₹4 crore = +₹6 crore. Thus net indirect taxes increase by ₹6 crore, making option A correct. ₹14 crore incorrectly adds both increases, while options C and D reverse the correct direction.

Correct answer: B. Decrease of ₹5 crore

Explanation: Because net indirect taxes equal indirect taxes minus subsidies, use signed changes: ΔNIT = (−₹8 crore) − (−₹3 crore) = −₹5 crore. Thus net indirect taxes decrease by ₹5 crore, so option B is correct. The fall in subsidies partly offsets the fall in indirect taxes; ignoring this offset gives the incorrect ₹11 crore alternatives.

Correct answer: C. ₹1,025 crore

Explanation: Use market price = factor cost + net indirect taxes. Since subsidies exceed indirect taxes by ₹25 crore, net indirect taxes are −₹25 crore. Therefore factor cost = market price − net indirect taxes = ₹1,000 − (−₹25) = ₹1,025 crore. Option C is correct. ₹975 crore would wrongly treat the negative adjustment as positive when moving back to factor cost.

Correct answer: B. ₹30 crore

Explanation: The governing relation is NDP at market price = NDP at factor cost + net indirect taxes, where net indirect taxes equal indirect taxes minus subsidies. Thus, net indirect taxes = 840 − 780 = ₹60 crore. Since indirect taxes are ₹90 crore, subsidies = 90 − 60 = ₹30 crore. Therefore, option B is correct; ₹60 crore is only the net tax amount, not the subsidy.

Correct answer: A. ₹1,210 crore

Explanation: The governing identity is market price = factor cost + net indirect taxes. If factor-cost output does not change, a ₹40 crore reduction in net indirect taxes lowers market price by the same ₹40 crore. Starting market price is ₹1,250 crore, so the new market price is 1,250 − 40 = ₹1,210 crore. Hence option A is correct; the other values incorrectly ignore or reverse the tax change.

Correct answer: A. Indirect taxes ₹100 crore and subsidies ₹30 crore

Explanation: The difference between market price and factor cost is net indirect tax, calculated as indirect taxes minus subsidies. For option A, net indirect tax = ₹100 crore − ₹30 crore = ₹70 crore, so market price is exactly ₹70 crore higher than factor cost. Option B gives ₹50 crore, option C gives −₹70 crore, and option D gives ₹50 crore. Therefore, A is unambiguous.

Correct answer: C. ₹680 crore

Explanation: To convert factor cost into market price, add net indirect taxes. Net indirect taxes = indirect taxes − subsidies = ₹55 crore − ₹15 crore = ₹40 crore. Therefore, market price = ₹640 crore + ₹40 crore = ₹680 crore. Option C is correct. ₹710 crore would incorrectly add the subsidy, while ₹640 crore would ignore taxes and subsidies altogether.

Correct answer: C. ₹975 crore

Explanation: To convert GDP at factor cost into GDP at market price, add net indirect taxes: GDP at MP = GDP at FC + NIT. Thus, ₹900 crore + ₹75 crore = ₹975 crore. Option A subtracts the tax, option B ignores the adjustment, and option D adds an incorrect amount. Therefore, option C is the only valid result.

Correct answer: A. ₹60 crore

Explanation: Net indirect taxes are defined as indirect taxes minus subsidies. Applying the definition, NIT = ₹85 crore − ₹25 crore = ₹60 crore. Option C results from adding the two amounts, while options B and D use only one component and therefore do not represent the net figure. Thus, option A is correct.

Correct answer: B. Negative ₹35 crore

Explanation: The formula is NIT = Indirect Taxes − Subsidies. Therefore, NIT = ₹55 crore − ₹90 crore = −₹35 crore. Because subsidies exceed taxes, the result is negative. Option A has the correct numerical difference but omits the negative sign; options C and D incorrectly add the two figures. Hence option B is correct.

Correct answer: C. ₹45 crore

Explanation: The governing relationship is Market Price − Factor Cost = Net Indirect Taxes. Since market price exceeds factor cost by ₹45 crore, the difference is positive ₹45 crore. Therefore, net indirect taxes equal ₹45 crore. A negative result would require factor cost to exceed market price, while zero and ₹90 crore do not match the stated difference.

Correct answer: B. Net indirect taxes are negative ₹20 crore

Explanation: Use the identity NIT = Market Price − Factor Cost. If factor cost is ₹20 crore higher than market price, then MP − FC = −₹20 crore. Therefore, net indirect taxes are negative ₹20 crore, indicating that subsidies exceed indirect taxes by ₹20 crore. Option A reverses the sign, while C and D are unsupported conclusions.

Correct answer: C. ₹260

Explanation: The governing relation is Market Price = Factor Cost + Net Indirect Taxes. Net indirect taxes equal indirect tax minus subsidy: ₹30 − ₹10 = ₹20. Therefore, market price = ₹240 + ₹20 = ₹260, so option C is correct. Option B ignores taxation, while ₹280 incorrectly adds the full tax without deducting the subsidy; ₹220 subtracts the net tax in the wrong direction.

Correct answer: B. ₹460

Explanation: The governing conversion is Factor Cost = Market Price − Net Indirect Taxes, because market price includes the net tax component in addition to factor payments. Thus, factor cost = ₹500 − ₹40 = ₹460, making option B correct. Option C merely repeats the market price; option D adds the tax instead of subtracting it; and option A subtracts ₹60, not the stated ₹40.