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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 output at market price is ₹40,000 crore and output at factor cost is ₹37,600 crore, while indirect taxes are ₹3,100 crore, what will be the subsidies?
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Answer and explanation
Correct answer: B. ₹700 crore
Explanation: The difference between market price and factor cost equals net indirect taxes. Hence, net indirect taxes = 40,000 − 37,600 = ₹2,400 crore. Using net indirect taxes = indirect taxes − subsidies, subsidies = 3,100 − 2,400 = ₹700 crore. Therefore option B is correct. ₹2,400 crore is the net tax, not the subsidy, and the other options do not balance the conversion.
02 If NDP at market price is ₹21,000 crore, NDP at factor cost is ₹20,100 crore, and indirect taxes rise by ₹150 crore while subsidies remain unchanged, what will be the new market price?
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Answer and explanation
Correct answer: C. ₹21,150 crore
Explanation: Initially, net indirect taxes are 21,000 − 20,100 = ₹900 crore. When indirect taxes increase by ₹150 crore and subsidies do not change, net indirect taxes also increase by ₹150 crore, becoming ₹1,050 crore. The new market-price NDP is therefore 20,100 + 1,050 = ₹21,150 crore. Option C is correct; the unchanged original value ignores the tax rise.
03 GDP at market price is ₹32,000 crore, depreciation is ₹2,200 crore, indirect taxes are ₹1,800 crore, subsidies are ₹500 crore, and net factor income from abroad is minus ₹400 crore. What will be NDP at factor cost and national income respectively?
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Answer and explanation
Correct answer: A. ₹28,500 crore and ₹28,100 crore
Explanation: First calculate net indirect taxes: 1,800 − 500 = ₹1,300 crore. Convert GDP to NDP by subtracting depreciation, and convert market price to factor cost by subtracting net indirect taxes: NDP at factor cost = 32,000 − 2,200 − 1,300 = ₹28,500 crore. National income adds net factor income from abroad: 28,500 − 400 = ₹28,100 crore. Option A is correct.
04 Market price is ₹75 crore lower than factor cost and indirect taxes are ₹40 crore. What are the subsidies?
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Answer and explanation
Correct answer: C. ₹115 crore
Explanation: Because market price is ₹75 crore below factor cost, net indirect taxes must be −₹75 crore. Using net indirect taxes = indirect taxes − subsidies, we get −75 = 40 − subsidies. Therefore, subsidies = 40 + 75 = ₹115 crore. Option C is correct. The negative net tax indicates that subsidies exceed indirect taxes; ignoring this sign would produce the wrong answers.
05 If output at market price is ₹3,000 crore and subsidies exceed indirect taxes by ₹120 crore, what is output at factor cost?
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Answer and explanation
Correct answer: C. ₹3,120 crore
Explanation: Subsidies exceeding indirect taxes by ₹120 crore means net indirect taxes = indirect taxes − subsidies = −₹120 crore. The conversion formula is output at factor cost = output at market price − net indirect taxes. Hence, factor-cost output = 3,000 − (−120) = ₹3,120 crore. Option C is correct. The negative sign raises factor-cost value above market-price value; subtracting ₹120 would incorrectly give option A.
06 GNP at factor cost is ₹4,200 crore. If indirect taxes rise by ₹50 crore and subsidies rise by ₹20 crore, what is the new market price, assuming initial net indirect taxes were ₹180 crore and other things remain unchanged?
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Answer and explanation
Correct answer: C. ₹4,410 crore
Explanation: The initial net indirect taxes are ₹180 crore. Their change is the increase in indirect taxes minus the increase in subsidies: 50 − 20 = ₹30 crore. Thus, new net indirect taxes = 180 + 30 = ₹210 crore. Converting GNP at factor cost to market price gives 4,200 + 210 = ₹4,410 crore. Option C is correct; adding both increases fully would ignore the subsidy adjustment.
07 The difference between market price and factor cost is ₹160 crore. If indirect taxes fall by ₹30 crore and subsidies fall by ₹10 crore, then what will be the new difference?
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Answer and explanation
Correct answer: B. ₹140 crore
Explanation: The difference between market price and factor cost equals net indirect taxes, which is indirect taxes minus subsidies. A ₹30 crore fall in taxes changes NIT by −₹30 crore, while a ₹10 crore fall in subsidies changes NIT by +₹10 crore because less subsidy is deducted. The net change is −₹20 crore. Hence the difference becomes ₹160 − ₹20 = ₹140 crore, so option B is correct.
08 If market price remains constant and subsidies rise by ₹25 crore while indirect taxes fall by ₹10 crore, then what is the change in factor cost?
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Answer and explanation
Correct answer: B. Increase of ₹35 crore
Explanation: Since Market Price = Factor Cost + NIT, a constant market price means any fall in net indirect taxes must be offset by an equal rise in factor cost. NIT = taxes − subsidies. Taxes fall by ₹10 crore and subsidies rise by ₹25 crore, so NIT falls by ₹10 + ₹25 = ₹35 crore. Therefore factor cost rises by ₹35 crore. Option B is correct; ₹15 crore ignores one of the two changes.
09 If subsidies are ₹160 crore and they are 80 percent of indirect taxes, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹40 crore
Explanation: Let indirect taxes be T. The statement says subsidies = 80% of T, so ₹160 = 0.8T. Hence T = ₹160 ÷ 0.8 = ₹200 crore. Net indirect taxes equal indirect taxes minus subsidies: ₹200 − ₹160 = ₹40 crore. Option D is the gross indirect-tax amount, while C is the subsidy itself; option B correctly gives the net amount.
10 If output at market price is ₹6,000 crore and, after a 25% fall in net indirect taxes, factor cost becomes ₹5,850 crore, what were net indirect taxes before the fall?
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Answer and explanation
Correct answer: C. ₹200 crore
Explanation: Use MP = FC + NIT, so the reduced NIT equals ₹6,000 − ₹5,850 = ₹150 crore. A 25% fall means the remaining amount is 75% of the original amount. If the original NIT is x, then 0.75x = 150, giving x = 150 ÷ 0.75 = ₹200 crore. Hence option C is correct. ₹150 crore is the reduced amount, not the original amount; the other values do not satisfy the percentage relation.
11 Factor cost is ₹4,000 crore. After a 20% rise in net indirect taxes, market price becomes ₹4,480 crore. What were net indirect taxes before the rise?
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Answer and explanation
Correct answer: B. ₹400 crore
Explanation: From MP = FC + NIT, the increased NIT is ₹4,480 − ₹4,000 = ₹480 crore. A 20% rise makes the new amount 120% of the original. Let the original NIT be x: 1.20x = 480, so x = 480 ÷ 1.20 = ₹400 crore. Therefore, option B is correct. ₹480 crore is the amount after the rise, whereas the question asks for the amount before the rise.
12 If factor cost is x and net indirect taxes are 15% of factor cost, while market price is ₹2,300 crore, what is the value of x?
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Answer and explanation
Correct answer: B. ₹2,000 crore
Explanation: The governing formula is MP = FC + NIT. Since NIT is 15% of factor cost x, MP = x + 0.15x = 1.15x. Substituting MP = ₹2,300 crore gives 1.15x = 2,300, so x = 2,300 ÷ 1.15 = ₹2,000 crore. Therefore, option B is correct. Option C reflects an incorrect percentage treatment, while option D adds 15% to market price instead of solving for factor cost.
13 If market price is x and net indirect taxes are negative 8% of market price, while factor cost is ₹2,700 crore, what is the market price?
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Answer and explanation
Correct answer: C. ₹2,500 crore
Explanation: Use FC = MP − NIT, or equivalently MP = FC + NIT. Here NIT = −0.08MP = −0.08x. Therefore, 2,700 = x − (−0.08x) = 1.08x. Solving gives x = 2,700 ÷ 1.08 = ₹2,500 crore, so option C is correct. The negative tax increases factor cost above market price; treating 8% as positive would incorrectly produce a lower value.
14 If GDP at market price is ₹21,500 crore and net indirect taxes are ₹1,350 crore what will be GDP at factor cost?
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Answer and explanation
Correct answer: B. ₹20,150 crore
Explanation: The governing conversion is GDP at factor cost = GDP at market price − net indirect taxes. Substituting the given values gives ₹21,500 crore − ₹1,350 crore = ₹20,150 crore. Therefore option B is correct. Option C incorrectly makes no adjustment, option D adds the tax instead of subtracting it, and option A subtracts an incorrect amount. No depreciation is involved because the question asks for GDP, not NDP.
15 If NDP at factor cost is ₹14,800 crore, indirect taxes are ₹1,250 crore and subsidies are ₹350 crore, what will be NDP at market price?
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Answer and explanation
Correct answer: C. ₹15,700 crore
Explanation: To move from factor cost to market price, add net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies: ₹1,250 − ₹350 = ₹900 crore. Therefore NDP at market price = ₹14,800 + ₹900 = ₹15,700 crore. Option C is correct. Adding gross taxes without subtracting subsidies gives ₹16,050 crore, while subtracting the net amount or making no adjustment gives other incorrect results.
16 If factor cost is ₹420 crore higher than market price, what will be net indirect taxes?
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Answer and explanation
Correct answer: B. Minus ₹420 crore
Explanation: The relevant identity is net indirect taxes = market price − factor cost. If factor cost is ₹420 crore higher than market price, then market price − factor cost = −₹420 crore. Thus net indirect taxes are minus ₹420 crore, so option B is correct. A positive ₹420 crore would describe the reverse relationship. The negative result indicates that subsidies exceed indirect taxes by ₹420 crore.
17 If indirect taxes rise by ₹180 crore and subsidies fall by ₹60 crore, what will be the change in net indirect taxes?
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Answer and explanation
Correct answer: C. Increase of ₹240 crore
Explanation: Net indirect taxes equal indirect taxes minus subsidies. An increase of ₹180 crore in taxes raises net indirect taxes by ₹180 crore. A fall of ₹60 crore in subsidies also raises net indirect taxes by ₹60 crore because less is being subtracted. Hence the total change is 180 + 60 = ₹240 crore increase. Option C is correct; subtracting the two changes would miss the effect of the subsidy decline.
18 If output at market price is ₹24,000 crore and output at factor cost is ₹22,600 crore while subsidies are ₹500 crore, what will be indirect taxes?
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Answer and explanation
Correct answer: C. ₹1,900 crore
Explanation: The difference between market price and factor cost is net indirect taxes: ₹24,000 − ₹22,600 = ₹1,400 crore. Since net indirect taxes = indirect taxes − subsidies, indirect taxes = net indirect taxes + subsidies = ₹1,400 + ₹500 = ₹1,900 crore. Therefore option C is correct. ₹1,400 crore is only the net amount, while ₹900 crore incorrectly subtracts subsidies again.
19 If indirect taxes are ₹1,100 crore and net indirect taxes are minus ₹200 crore, what will be subsidies?
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Answer and explanation
Correct answer: C. ₹1,300 crore
Explanation: Use the identity net indirect taxes = indirect taxes − subsidies. Rearranging gives subsidies = indirect taxes − net indirect taxes. Substitution yields subsidies = 1,100 − (−200) = ₹1,300 crore. Therefore option C is correct. The negative net value means subsidies exceed indirect taxes; ₹900 crore results from incorrectly treating −₹200 as a positive amount, and ₹1,100 crore ignores the net adjustment.
20 If national income is ₹13,400 crore and net indirect taxes are minus ₹250 crore, what will be NNP at market price?
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Answer and explanation
Correct answer: B. ₹13,150 crore
Explanation: National income equals NNP at factor cost. The conversion is NNP at market price = NNP at factor cost + net indirect taxes. Since net indirect taxes are negative ₹250 crore, the calculation is ₹13,400 + (−₹250) = ₹13,150 crore. Therefore, option B is correct. A negative tax means a net subsidy effect, so market price is lower than factor cost; simply retaining ₹13,400 or adding ₹250 would be incorrect.
21 If GDP at market price is ₹28,000 crore, depreciation is ₹2,300 crore and net indirect taxes are ₹1,600 crore, what will be NDP at factor cost?
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Answer and explanation
Correct answer: B. ₹24,100 crore
Explanation: Two adjustments are required. First, deduct depreciation from GDP to obtain NDP; second, deduct net indirect taxes to convert market price into factor cost. Thus, NDP at factor cost = ₹28,000 − ₹2,300 − ₹1,600 = ₹24,100 crore. Option B is correct. ₹25,700 crore deducts only depreciation, while ₹26,400 crore deducts only taxes; ₹23,100 crore subtracts too much.
22 If NDP at factor cost is ₹19,500 crore, depreciation is ₹1,500 crore and net indirect taxes are ₹950 crore, what will be GDP at market price?
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Answer and explanation
Correct answer: C. ₹21,950 crore
Explanation: To move from NDP at factor cost to GDP at market price, add depreciation to change net into gross and add net indirect taxes to change factor cost into market price. Therefore, GDP at market price = ₹19,500 + ₹1,500 + ₹950 = ₹21,950 crore. Option C is correct. Options A and B omit one of the required adjustments, while D adds an incorrect extra amount.
23 If output at market price rises by 12 percent and output at factor cost rises by 9 percent, what is required to find the change in net indirect taxes?
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Answer and explanation
Correct answer: B. Initial values of both aggregates
Explanation: Net indirect taxes equal the difference between output measured at market price and output measured at factor cost. Percentage growth rates alone cannot determine the change in that difference because the rates apply to potentially different initial bases. The initial values of both aggregates are therefore required. Option B is correct. The 3 percentage-point gap is not itself the change in taxes, and either taxes or subsidies alone is insufficient.
24 In the initial year, market price was ₹12,000 crore and factor cost was ₹11,000 crore. In the next year, they became ₹13,500 crore and ₹12,200 crore. What was the change in net indirect taxes?
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Answer and explanation
Correct answer: C. Increase of ₹300 crore
Explanation: Net indirect taxes are measured as market price minus factor cost. In the initial year, the amount was ₹12,000 − ₹11,000 = ₹1,000 crore. In the next year, it was ₹13,500 − ₹12,200 = ₹1,300 crore. Therefore, the change was ₹1,300 − ₹1,000 = ₹300 crore increase, making option C correct. Comparing only market prices or only factor costs would not give the tax change.
25 If producers receive ₹380 crore more at factor cost than at market price, what does this correctly imply?
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Answer and explanation
Correct answer: B. Subsidies exceed indirect taxes by ₹380 crore
Explanation: The governing relation is Market Price = Factor Cost + Net Indirect Taxes, or NIT = MP − FC. If factor cost exceeds market price by ₹380 crore, then MP − FC = −₹380 crore. Thus net indirect taxes are negative, which can occur only when subsidies exceed indirect taxes by ₹380 crore. Direct taxes and depreciation do not determine this conversion.
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