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Aggregates related to national income - Market price and factor cost
राष्ट्रीय आय से संबंधित समुच्चय: बाजार मूल्य और साधन लागत
In this Class 12 Economics topic from National Income and Related Aggregates, students learn how national income measures are expressed at market price and factor cost. The topic explains the role of net indirect taxes, including indirect taxes and subsidies, in converting one valuation to the other. Students also connect these concepts with aggregates such as GDP, NDP, GNP and NNP, helping them interpret national income data and apply the relevant relationships in numerical questions.
Practice questions
01 If factor cost is ₹3,500 crore and net indirect taxes are ₹450 crore what will be market price?
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Answer and explanation
Correct answer: C. ₹3,950 crore
Explanation: The relationship between the two valuations is Market Price = Factor Cost + Net Indirect Taxes. Substituting the given values gives ₹3,500 crore + ₹450 crore = ₹3,950 crore. Hence, option C is correct. ₹3,050 crore would result from subtracting the tax, while ₹3,500 crore ignores the tax and ₹4,400 crore adds the figures incorrectly.
02 If market price is ₹4,800 crore and net indirect taxes are ₹550 crore what will be factor cost?
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Answer and explanation
Correct answer: B. ₹4,250 crore
Explanation: To convert market price into factor cost, net indirect taxes must be deducted: Factor Cost = Market Price − Net Indirect Taxes. Therefore, ₹4,800 crore − ₹550 crore = ₹4,250 crore. Option B is correct. ₹4,800 crore merely repeats the market price, ₹5,350 crore incorrectly adds the tax, and ₹4,050 crore uses an incorrect subtraction.
03 If indirect taxes are ₹800 crore and subsidies are ₹300 crore what will be the difference between the two values?
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Answer and explanation
Correct answer: B. ₹500 crore
Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies because subsidies reduce the effective tax burden included in market prices. Thus, Net Indirect Taxes = ₹800 crore − ₹300 crore = ₹500 crore. Option B is correct. ₹300 crore is only the subsidy amount, ₹800 crore is only the tax amount, and ₹1,100 crore incorrectly adds taxes and subsidies.
04 If subsidies are ₹700 crore and indirect taxes are ₹500 crore what will be net indirect taxes?
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Answer and explanation
Correct answer: B. Minus ₹200 crore
Explanation: Net indirect taxes are defined as indirect taxes minus subsidies. Here, the calculation is ₹500 crore − ₹700 crore = −₹200 crore. Therefore, option B is correct. The negative sign shows that subsidies exceed indirect taxes by ₹200 crore. Option A gives only the magnitude without the required sign, while C ignores subsidies and D adds both amounts.
05 If factor cost is ₹4,000 crore and net indirect taxes are minus ₹150 crore what will be market price?
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Answer and explanation
Correct answer: B. ₹3,850 crore
Explanation: Market Price = Factor Cost + Net Indirect Taxes. Since net indirect taxes are negative ₹150 crore, the calculation is ₹4,000 crore + (−₹150 crore) = ₹3,850 crore. Thus, option B is correct. Adding a negative amount reduces the factor cost. ₹4,150 crore would result from treating the negative tax as positive, while the other values do not follow the formula.
06 If market price is ₹3,600 crore and net indirect taxes are minus ₹250 crore what will be factor cost?
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Answer and explanation
Correct answer: C. ₹3,850 crore
Explanation: The conversion formula is Factor Cost = Market Price − Net Indirect Taxes. Substituting the negative value gives ₹3,600 crore − (−₹250 crore) = ₹3,850 crore. Therefore, option C is correct. Subtracting a negative amount is equivalent to adding ₹250 crore. ₹3,350 crore would incorrectly treat the tax as positive, and the other options use unrelated calculations.
07 If GDP at factor cost is ₹8,600 crore and net indirect taxes are ₹650 crore what will be GDP at market price?
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Answer and explanation
Correct answer: C. ₹9,250 crore
Explanation: The governing relationship is GDP at market price = GDP at factor cost + net indirect taxes. Therefore, GDP at market price = ₹8,600 crore + ₹650 crore = ₹9,250 crore. Option C is correct. Option B merely repeats the factor-cost value, while options A and D result from subtracting the tax or adding an incorrect amount.
08 How is NDP at market price converted into NDP at factor cost?
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Answer and explanation
Correct answer: A. By subtracting net indirect taxes
Explanation: The governing conversion rule is NDP at factor cost = NDP at market price − net indirect taxes. Market price includes the effect of indirect taxes net of subsidies, whereas factor cost reflects payments to factors of production. Thus, net indirect taxes must be subtracted. Option A is correct; depreciation changes net and gross measures, and the other choices do not perform this conversion.
09 If NDP at market price is ₹7,300 crore and net indirect taxes are ₹400 crore what will be NDP at factor cost?
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Answer and explanation
Correct answer: B. ₹6,900 crore
Explanation: To convert NDP from market price to factor cost, subtract net indirect taxes: NDP at factor cost = NDP at market price − net indirect taxes. Hence, ₹7,300 crore − ₹400 crore = ₹6,900 crore. Option B is correct. Option C ignores the tax adjustment, option D adds the taxes, and option A subtracts an incorrect amount.
10 If NDP at factor cost is ₹7,100 crore and net indirect taxes are ₹500 crore what will be NDP at market price?
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Answer and explanation
Correct answer: C. ₹7,600 crore
Explanation: The governing formula is NDP at market price = NDP at factor cost + net indirect taxes. Substituting the given values gives ₹7,100 crore + ₹500 crore = ₹7,600 crore. Therefore, option C is correct. Option B is the factor-cost figure before adjustment; option A subtracts the tax, and option D adds too much.
11 If NNP at market price is ₹10,000 crore and net indirect taxes are ₹800 crore what will be national income?
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Answer and explanation
Correct answer: B. ₹9,200 crore
Explanation: National income is defined as NNP at factor cost. To convert NNP at market price into NNP at factor cost, subtract net indirect taxes: NNP at factor cost = ₹10,000 crore − ₹800 crore = ₹9,200 crore. Thus, option B is correct. Option C ignores the adjustment, option D adds the taxes, and option A subtracts an incorrect amount.
12 If national income is ₹8,500 crore and net indirect taxes are ₹600 crore what will be NNP at market price?
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Answer and explanation
Correct answer: C. ₹9,100 crore
Explanation: National income equals NNP at factor cost. To obtain NNP at market price, add net indirect taxes because market price includes this net adjustment: NNP at market price = ₹8,500 crore + ₹600 crore = ₹9,100 crore. Hence, option C is correct. Option B is the original factor-cost value, while A subtracts taxes and D adds an excessive amount.
13 If market price is ₹450 crore higher than factor cost what will be net indirect taxes?
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Answer and explanation
Correct answer: B. ₹450 crore
Explanation: The governing identity is market price = factor cost + net indirect taxes. Therefore, the difference between market price and factor cost equals net indirect taxes. Since market price exceeds factor cost by ₹450 crore, net indirect taxes = ₹450 crore. Option B is correct; the negative value would apply only if factor cost exceeded market price.
14 If factor cost is ₹350 crore higher than market price what will be net indirect taxes?
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Answer and explanation
Correct answer: B. Minus ₹350 crore
Explanation: Use the identity market price − factor cost = net indirect taxes. Here factor cost is ₹350 crore greater than market price, so market price − factor cost = −₹350 crore. Consequently, net indirect taxes are negative ₹350 crore, indicating that subsidies exceed indirect taxes by ₹350 crore. Option B is correct; a positive answer would reverse the stated relationship.
15 If taxes and subsidies are both ₹450 crore what will be the relationship between market price and factor cost?
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Answer and explanation
Correct answer: C. Both will be equal
Explanation: Net indirect taxes equal indirect taxes minus subsidies. Since both amounts are ₹450 crore, net indirect taxes = ₹450 crore − ₹450 crore = zero. Using market price = factor cost + net indirect taxes, market price therefore equals factor cost. Option C is correct; equal prices do not mean that both values are zero.
16 If the factor cost of a good is ₹800 indirect tax is ₹120 and subsidy is ₹40 what will be its market price?
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Answer and explanation
Correct answer: C. ₹880
Explanation: First calculate net indirect tax by subtracting subsidy from indirect tax: ₹120 − ₹40 = ₹80. The governing formula is market price = factor cost + net indirect tax. Thus, market price = ₹800 + ₹80 = ₹880. Option C is correct. Option B ignores all net taxes, option A subtracts the net tax, and option D adds the gross tax without accounting for the subsidy.
17 If the market price of a good is ₹1,200, indirect tax is ₹200 and subsidy is ₹50, what will be its factor cost?
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Answer and explanation
Correct answer: C. ₹1,050
Explanation: The governing relation is Factor Cost = Market Price − Net Indirect Taxes, where Net Indirect Taxes = Indirect Taxes − Subsidies. Thus, net indirect taxes = ₹200 − ₹50 = ₹150. Factor cost = ₹1,200 − ₹150 = ₹1,050, so option C is correct. Options A, B and D result from using an incorrect tax or subsidy adjustment.
18 What is the role of direct tax in converting market price into factor cost?
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Answer and explanation
Correct answer: C. It is not used
Explanation: The conversion from market price to factor cost uses only net indirect taxes: Factor Cost = Market Price − (Indirect Taxes − Subsidies). Direct taxes are imposed on income or profits and do not form part of the adjustment between market price and factor cost. Therefore, direct tax is not used in this conversion, making option C correct. The other choices confuse direct tax with indirect tax or depreciation.
19 What happens to net indirect taxes if indirect taxes rise while subsidies remain unchanged?
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Answer and explanation
Correct answer: B. They will rise
Explanation: Net indirect taxes are calculated as Indirect Taxes − Subsidies. If indirect taxes increase while subsidies remain unchanged, the subtraction produces a larger net amount. For example, if taxes rise from ₹500 to ₹600 and subsidies stay at ₹100, net indirect taxes rise from ₹400 to ₹500. Therefore, option B is correct; the other choices contradict the formula.
20 What happens to net indirect taxes if subsidies rise while indirect taxes remain unchanged?
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Answer and explanation
Correct answer: B. They will fall
Explanation: Net indirect taxes equal Indirect Taxes − Subsidies. When indirect taxes remain constant and subsidies increase, a larger amount is subtracted from the same tax total, so net indirect taxes decrease. For example, taxes of ₹800 and subsidies rising from ₹200 to ₹300 reduce net taxes from ₹600 to ₹500. Hence option B is correct.
21 If output at market price is ₹15,000 crore, indirect taxes are ₹1,100 crore and subsidies are ₹400 crore, what will be output at factor cost?
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Answer and explanation
Correct answer: C. ₹14,300 crore
Explanation: Use Factor Cost = Market Price − Net Indirect Taxes, with Net Indirect Taxes = Indirect Taxes − Subsidies. Net indirect taxes = ₹1,100 crore − ₹400 crore = ₹700 crore. Therefore, output at factor cost = ₹15,000 crore − ₹700 crore = ₹14,300 crore. Thus option C is correct; the other values use an incorrect subtraction or addition.
22 If market price is ₹8,250 crore and factor cost is ₹7,700 crore, what will be net indirect taxes?
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Answer and explanation
Correct answer: C. ₹550 crore
Explanation: The relationship is Market Price = Factor Cost + Net Indirect Taxes. Rearranging gives Net Indirect Taxes = Market Price − Factor Cost. Therefore, net indirect taxes = ₹8,250 crore − ₹7,700 crore = ₹550 crore. Option C is correct. The other options arise from subtracting incorrectly or using an unrelated amount rather than the difference between the two aggregates.
23 If indirect taxes are ₹950 crore and net indirect taxes are ₹600 crore, what will be the subsidy?
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Answer and explanation
Correct answer: B. ₹350 crore
Explanation: The governing formula is Net Indirect Taxes = Indirect Taxes − Subsidies. Rearranging, Subsidies = Indirect Taxes − Net Indirect Taxes. Therefore, subsidy = ₹950 crore − ₹600 crore = ₹350 crore. Option B is correct. If the subsidy were ₹250 crore, net indirect taxes would be ₹700 crore, so option A does not satisfy the given data.
24 If subsidies are ₹280 crore and net indirect taxes are ₹520 crore, what will be the indirect taxes?
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Answer and explanation
Correct answer: D. ₹800 crore
Explanation: Net Indirect Taxes = Indirect Taxes − Subsidies. To find total indirect taxes, rearrange the equation: Indirect Taxes = Net Indirect Taxes + Subsidies. Hence, indirect taxes = ₹520 crore + ₹280 crore = ₹800 crore. Option D is correct. ₹520 crore is only the net amount, while ₹700 crore would result from an incorrect subtraction.
25 If market price is ₹6,900 crore, subsidies are ₹250 crore and indirect taxes are ₹750 crore, what will be factor cost?
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Answer and explanation
Correct answer: B. ₹6,400 crore
Explanation: First calculate net indirect taxes: ₹750 crore − ₹250 crore = ₹500 crore. Then apply Factor Cost = Market Price − Net Indirect Taxes. Thus, factor cost = ₹6,900 crore − ₹500 crore = ₹6,400 crore. Option B is correct. Adding net taxes would incorrectly increase the value, while options A and C use an incorrect tax adjustment.
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