Aggregates related to national income - Market price and factor cost

Correct answer: A. NNP at market price = NNP at factor cost + NIT / NNPMP = NNPFC + NIT

Explanation: For any identical aggregate, market price equals factor cost plus net indirect taxes. Applying this rule to net national product gives NNPMP = NNPFC + NIT. Depreciation is already accounted for because the measure is net. Option B subtracts NIT in the wrong direction, C reverses the conversion, and D substitutes GDP for NNP.

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

Explanation: Net indirect taxes are defined as indirect taxes minus subsidies. The identity is market price = factor cost + net indirect taxes. If net indirect taxes equal zero, the adjustment disappears and market price equals factor cost. This does not require both taxes and subsidies to be zero; they may be equal. National income and depreciation are unrelated to this certainty.

Correct answer: C. ₹430

Explanation: Factor cost is the total remuneration paid to all factors of production. Wages reward labour, rent rewards land, interest rewards capital, and profit rewards entrepreneurship. Thus, factor cost = ₹250 + ₹60 + ₹45 + ₹75 = ₹430. Option B omits profit, while A and D do not represent the correct total. Therefore, option C is correct.

Correct answer: C. ₹468

Explanation: To convert factor cost into market price, add net indirect taxes. First calculate NIT = indirect tax − subsidy = ₹50 − ₹12 = ₹38. Then market price = factor cost + NIT = ₹430 + ₹38 = ₹468. Option D incorrectly adds the subsidy, B ignores taxes, and A subtracts the net adjustment. Hence option C is correct.

Correct answer: B. Indirect taxes minus subsidies

Explanation: Net indirect taxes are defined as indirect taxes minus subsidies: NIT = indirect taxes − subsidies. Indirect taxes raise the price paid by buyers, while subsidies reduce it; therefore, the net adjustment is their difference. Direct taxes do not enter this particular conversion. Option C wrongly adds subsidies, and A and D use direct taxes.

Correct answer: C. The status remains unchanged

Explanation: Market-price to factor-cost conversion changes only the valuation basis. Net indirect taxes are deducted from market price, or added in reverse, while depreciation is not involved. Since gross and net status depends on depreciation, that status remains unchanged. A and B confuse two separate conversions, and D incorrectly changes the domestic-national classification.

Correct answer: C. The status remains unchanged

Explanation: The conversion between market price and factor cost adjusts only net indirect taxes. It changes how the value is expressed, not whether the production measure is domestic or national. Domestic and national status depends on the production boundary and net factor income from abroad, respectively. Therefore, the status remains unchanged; options A, B and D confuse unrelated classifications.

Correct answer: B. ₹1,380 crore

Explanation: To convert market price into factor cost, subtract net indirect taxes: factor cost = market price − NIT. Thus, factor cost = ₹1,500 crore − ₹120 crore = ₹1,380 crore. The ₹90 crore depreciation is irrelevant because gross-to-net conversion, not market-price-to-factor-cost conversion, is being performed. Option B is therefore correct.

Correct answer: C. ₹1,885 crore

Explanation: The governing relation is Market Price = Factor Cost + Net Indirect Taxes. Therefore, market price = ₹1,750 crore + ₹135 crore = ₹1,885 crore. Net factor income from abroad is used when converting a domestic aggregate into a national aggregate; it does not affect the conversion between factor cost and market price. Hence, option C is correct.

Correct answer: D. ₹2,650 crore

Explanation: First calculate net indirect taxes: NIT = Indirect Taxes − Subsidies = ₹190 crore − ₹240 crore = −₹50 crore. The relation is Factor Cost = Market Price − NIT. Thus, factor-cost output = ₹2,600 − (−₹50) = ₹2,650 crore. A subsidy larger than tax makes NIT negative, so it increases factor cost relative to market price. Option D is correct.

Correct answer: B. ₹16,800 crore

Explanation: The governing formula is GDP at factor cost = GDP at market price − Net Indirect Taxes. Substituting the given values gives ₹18,000 crore − ₹1,200 crore = ₹16,800 crore. Net indirect taxes are included in market prices but not in factor-cost valuation, so they must be deducted. Therefore, option B is correct; adding them would incorrectly produce option D.

Correct answer: C. ₹13,300 crore

Explanation: To move from factor cost to market price, add net indirect taxes. Net indirect taxes = Indirect Taxes − Subsidies = ₹1,100 − ₹300 = ₹800 crore. Therefore, NDP at market price = ₹12,500 + ₹800 = ₹13,300 crore. Option C is correct. Subtracting the net tax or adding gross taxes without considering subsidies leads to the other alternatives.

Correct answer: B. Minus ₹650 crore

Explanation: The relationship is Net Indirect Taxes = Market Price − Factor Cost. If market price is ₹650 crore lower than factor cost, then MP − FC = −₹650 crore. Thus, net indirect taxes are negative ₹650 crore. This indicates that subsidies exceed indirect taxes by ₹650 crore. Therefore, option B is correct; a positive amount would reverse the stated relationship.

Correct answer: B. Increase of ₹120 crore

Explanation: Net indirect taxes equal indirect taxes minus subsidies. Therefore, the change in NIT is the change in taxes minus the change in subsidies: ₹200 crore − ₹80 crore = ₹120 crore. Since the tax increase is larger, NIT rises by ₹120 crore. Option B is correct; adding both changes would ignore the subtractive role of subsidies.

Correct answer: C. ₹1,700 crore

Explanation: First find net indirect taxes from the difference between market price and factor cost: NIT = ₹20,000 − ₹18,700 = ₹1,300 crore. Because NIT = Indirect Taxes − Subsidies, indirect taxes = NIT + Subsidies = ₹1,300 + ₹400 = ₹1,700 crore. Hence, option C is correct. The smaller figures fail to add subsidies back to net taxes.

Correct answer: C. ₹1,050 crore

Explanation: Use NIT = Indirect Taxes − Subsidies. Rearranging gives Subsidies = Indirect Taxes − NIT. Substituting the values: Subsidies = ₹900 − (−₹150) = ₹1,050 crore. The negative NIT means subsidies exceed indirect taxes, which is consistent with ₹1,050 crore being greater than ₹900 crore. Therefore, option C is correct.

Correct answer: C. ₹16,700 crore

Explanation: The governing relationship is GNP at market price = GNP at factor cost + net indirect taxes, because market prices include the tax component after adjusting for subsidies. Therefore, GNP at market price = ₹15,800 crore + ₹900 crore = ₹16,700 crore. Option C is correct. Option A subtracts taxes, while B ignores the adjustment and D adds an incorrect amount.

Correct answer: C. Increase of ₹300 crore

Explanation: Net indirect taxes equal the difference between the market-price and factor-cost values. In the initial year, the difference was ₹10,000 − ₹9,200 = ₹800 crore. In the next year, it was ₹11,200 − ₹10,100 = ₹1,100 crore. The change was ₹1,100 − ₹800 = ₹300 crore increase. Hence option C is correct; comparing only market prices or only factor costs gives a wrong result.

Correct answer: C. ₹5,600 crore

Explanation: The phrase “12 percent higher than factor cost” means the increase is calculated on ₹5,000 crore. The increase is 12/100 × ₹5,000 = ₹600 crore. Therefore, market price = ₹5,000 + ₹600 = ₹5,600 crore, or ₹5,000 × 1.12. Option C is correct. Option A uses an incorrect percentage amount, while B and D apply larger unjustified increases.

Correct answer: C. ₹8,400 crore

Explanation: Because factor cost is stated to be 5 percent higher than the given market price, calculate 5% of ₹8,000 crore: 0.05 × ₹8,000 = ₹400 crore. Add this increase to the original amount: factor cost = ₹8,000 + ₹400 = ₹8,400 crore. Thus option C is correct. Option B ignores the increase, A subtracts it, and D applies a 10% increase instead of 5%.

Correct answer: C. ₹13,800 crore

Explanation: The market-price and factor-cost relationship is market price = factor cost + net indirect taxes. Net indirect taxes are 8% of ₹15,000 crore, so they equal 0.08 × ₹15,000 = ₹1,200 crore. Therefore, factor cost = ₹15,000 − ₹1,200 = ₹13,800 crore. Option C is correct. The other options result from using an incorrect percentage or subtracting the wrong amount.

Correct answer: B. ₹9,900 crore

Explanation: The governing relation is Market Price = Factor Cost + Net Indirect Taxes. Net indirect taxes equal 10% of ₹9,000 crore, which is ₹900 crore. Therefore, market price = ₹9,000 crore + ₹900 crore = ₹9,900 crore. Option B is correct. Option A adds only ₹100 crore, while Options C and D use incorrect percentage calculations.

Correct answer: C. ₹400 crore

Explanation: Let subsidies be x crore. Since indirect taxes are three times subsidies, indirect taxes = 3x. Net indirect taxes equal indirect taxes minus subsidies, so 3x − x = 2x = ₹800 crore. Hence x = ₹400 crore. Option C is correct. The other options do not satisfy the equation because twice their value would not equal ₹800 crore.

Correct answer: B. Minus ₹200 crore

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Subsidies are 25% higher than ₹800 crore, so they equal ₹800 × 1.25 = ₹1,000 crore. Therefore, net indirect taxes = ₹800 crore − ₹1,000 crore = −₹200 crore. Option B is correct; the negative sign shows that subsidies exceed indirect taxes.

Correct answer: B. The gap will fall

Explanation: The gap between market price and factor cost equals net indirect taxes: MP − FC = indirect taxes − subsidies. If subsidies rise more than indirect taxes, net indirect taxes decrease. With other factors unchanged, market price therefore moves closer to factor cost, so the gap falls. Option B is correct; the size of the fall depends on the difference between the two increases.