Aggregates related to national income - Market price and factor cost

Correct answer: B. ₹100 crore

Explanation: The difference between market price and factor cost equals net indirect taxes. Calculate net indirect taxes as indirect taxes − subsidies = 150 − 50 = ₹100 crore. Therefore, market price exceeds factor cost by ₹100 crore. Option C ignores the subsidy, while option A reverses the adjustment and option D incorrectly adds taxes and subsidies.

Correct answer: B. ₹40 crore lower

Explanation: Net indirect taxes equal indirect taxes minus subsidies. If subsidies exceed indirect taxes by ₹40 crore, net indirect taxes are −₹40 crore. Since Market Price = Factor Cost + Net Indirect Taxes, market price is ₹40 crore lower than factor cost. Option A reverses the direction, option C assumes zero net taxes, and option D doubles the difference without justification.

Correct answer: B. The gap between market price and factor cost will rise

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. With subsidies unchanged, an increase in indirect taxes directly raises net indirect taxes. Since Market Price = Factor Cost + Net Indirect Taxes, the difference between market price and factor cost widens. Thus option B is correct. Option A reverses the effect, while C and D do not follow from the formula.

Correct answer: B. FC = MP − NIT

Explanation: The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Rearranging it gives Factor Cost = Market Price − Net Indirect Taxes, so option B is correct. Depreciation changes gross and net measures, while NFIA changes domestic and national measures; neither is used to convert market price into factor cost. The sign must therefore be negative.

Correct answer: C. Market price equals factor cost

Explanation: Net Indirect Taxes = Indirect Taxes − Subsidies. If NIT equals zero, the conversion formula becomes Market Price = Factor Cost + 0, so market price must equal factor cost. The individual tax and subsidy amounts need not both be zero; they may be equal and positive. Therefore option C is the necessary conclusion.

Correct answer: C. ₹320

Explanation: Factor cost is the total remuneration paid to all factors of production. The relevant payments are wages, rent, interest and profit. Therefore, Factor Cost = ₹200 + ₹40 + ₹30 + ₹50 = ₹320, making option C correct. ₹270 omits interest and profit, while ₹290 omits profit. ₹350 is an incorrect total and has no basis in the given data.

Correct answer: C. ₹355

Explanation: The buyer pays the market price, not the factor cost. The conversion rule is Market Price = Factor Cost + Net Indirect Taxes. Substituting the values gives ₹320 + ₹35 = ₹355. Hence option C is correct. ₹320 is the factor-cost value before the tax adjustment, and ₹285 incorrectly subtracts NIT; ₹390 is an unsupported total.

Correct answer: B. Indirect taxes minus subsidies

Explanation: Net indirect taxes measure the net effect of government intervention through indirect taxes and subsidies. The formula is NIT = Indirect Taxes − Subsidies. Therefore option B is correct. Direct taxes are not used in this conversion, and adding subsidies or reversing the order gives the wrong sign and an incorrect market-price/factor-cost relationship.

Correct answer: A. Wages, rent, interest and profit

Explanation: Factor cost measures the total remuneration paid to the factors of production for their productive services. It includes wages for labour, rent for land, interest for capital, and profit for entrepreneurship. Therefore option A is correct. Taxes and penalties are government-related payments, imports and exports are trade items, and gifts or pensions are transfer payments rather than factor rewards.

Correct answer: A. Net indirect taxes

Explanation: The difference between market price and factor cost is net indirect taxes, defined as indirect taxes minus subsidies. The relationship is Market Price = Factor Cost + Net Indirect Taxes. Direct taxes, depreciation, and net factor income from abroad may affect other national-income calculations, but they do not create this valuation difference. Hence option A is correct.

Correct answer: B. Net indirect taxes

Explanation: To convert factor cost into market price, add net indirect taxes, which equal indirect taxes minus subsidies. The formula is Market Price = Factor Cost + Net Indirect Taxes. Depreciation changes gross and net measures, while direct taxes and net factor income from abroad serve different purposes in national-income accounting. Thus option B is the only correct answer.

Correct answer: A. Net indirect taxes

Explanation: Factor cost is obtained from market price by removing the net indirect tax component. Therefore, Factor Cost = Market Price − Net Indirect Taxes, where net indirect taxes equal indirect taxes minus subsidies. Depreciation concerns gross versus net aggregates, and net exports or national income are separate concepts. Consequently, option A is correct.

Correct answer: B. ₹400 crore

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Thus, net indirect taxes = ₹600 crore − ₹200 crore = ₹400 crore. Option B is correct. ₹600 crore is only the gross indirect-tax amount; subtracting the subsidy gives the net figure. Adding the two amounts would incorrectly treat subsidies as an additional tax burden, producing the distractor ₹800 crore.

Correct answer: B. ₹4,650 crore

Explanation: Use the conversion formula Factor Cost = Market Price − Net Indirect Taxes. Substituting the values gives ₹5,000 crore − ₹350 crore = ₹4,650 crore. Therefore option B is correct. Option D results from adding the tax, which reverses the required conversion, while option C ignores the tax and option A subtracts an incorrect amount.

Correct answer: C. ₹5,000 crore

Explanation: The governing relationship is Market Price = Factor Cost + Net Indirect Taxes. Substituting the given values, Market Price = ₹4,700 crore + ₹300 crore = ₹5,000 crore. Therefore, option C is correct. Option B merely repeats the factor cost, while options A and D result from incorrect subtraction or addition. Positive net indirect taxes raise market price above factor cost.

Correct answer: B. Market price may fall

Explanation: A subsidy is a payment or concession that lowers the effective cost of production or sale. When producers receive this support, part of the cost need not be recovered through the price paid by buyers; consequently, the market price may fall, other things remaining equal. Thus option B is correct. A and C incorrectly state a rise, while D ignores the cost-reducing effect of subsidy.

Correct answer: C. Zero

Explanation: Net indirect taxes are calculated as Indirect Taxes − Subsidies. If the two amounts are equal, their difference is zero; for example, ₹500 crore − ₹500 crore = ₹0. Therefore, option C is correct. Net indirect taxes would be positive only when taxes exceed subsidies and negative when subsidies exceed taxes. Equal amounts cannot produce a positive, negative, or doubled result.

Correct answer: C. Both will be equal

Explanation: The governing formula is Market Price = Factor Cost + Net Indirect Taxes. When net indirect taxes equal zero, the formula becomes Market Price = Factor Cost + 0, so both values are equal. Hence option C is correct. Option A would apply with positive net indirect taxes, and option B with negative net indirect taxes; option D has no basis in the formula.

Correct answer: B. Factor cost

Explanation: Use the relationship Market Price = Factor Cost + Net Indirect Taxes. If net indirect taxes are negative, the adjustment is subtracted from factor cost, so market price becomes lower than factor cost; equivalently, factor cost may be higher than market price. Therefore option B is correct. This situation generally reflects subsidies exceeding indirect taxes. The other options do not follow from the formula.

Correct answer: C. ₹2,250

Explanation: To convert factor cost into market price, apply Market Price = Factor Cost + Net Indirect Taxes. The calculation is ₹2,000 + ₹250 = ₹2,250. Thus option C is correct. Option B is only the given factor cost; ₹1,750 would be obtained by subtracting the tax, which is the reverse conversion, and ₹2,500 is an arithmetic error. The units remain the same as the amounts given.

Correct answer: B. ₹2,100

Explanation: The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Rearranging it gives Factor Cost = Market Price − Net Indirect Taxes. Therefore, Factor Cost = ₹2,400 − ₹300 = ₹2,100, so option B is correct. Option C repeats the market price, D incorrectly adds the tax, and A subtracts too much. The subtraction is required because the calculation moves from market price back to factor cost.

Correct answer: C. Wages

Explanation: Factor cost measures the payments made to factors of production for their productive services. Wages are the reward paid to labour, so they form part of factor cost and option C is correct. Customs duty and GST are indirect taxes that create a market-price adjustment, while subsidy is deducted from indirect taxes in calculating net indirect taxes. Hence the other options are not factor payments.

Correct answer: A. Land

Explanation: In the factor-reward framework, rent is the payment for the use of land and other natural resources. Therefore, land is the correct answer, option A. Labour receives wages, capital receives interest, and entrepreneurship receives profit. These distinctions are useful when understanding factor cost because factor cost includes rewards paid to productive factors, whereas taxes and subsidies are price adjustments rather than factor rewards.

Correct answer: C. Capital

Explanation: Interest is the factor reward for capital. It is paid for the use of financial capital, machinery, equipment, or other produced means of production, so option C is correct. The standard correspondence is land–rent, labour–wages, capital–interest, and entrepreneurship–profit. Remembering these pairs also helps identify which payments enter factor cost and distinguish them from indirect taxes and subsidies.

Correct answer: B. Labour

Explanation: In the theory of factor rewards, wages are the payment made to labour for its physical and mental effort in the production process. Therefore, option B is correct. The other factor-reward pairs are also important: land receives rent, capital receives interest, and entrepreneurship receives profit. Thus, wages cannot be matched with capital, land, or entrepreneurship.