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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 GNP at market price is ₹2,900 crore and GNP at factor cost is ₹2,750 crore, while indirect taxes are ₹210 crore, what are subsidies?
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Answer and explanation
Correct answer: B. ₹60 crore
Explanation: Use the identity GNP at market price = GNP at factor cost + indirect taxes − subsidies. First, the difference between the two GNP measures is net indirect taxes: ₹2,900 − ₹2,750 = ₹150 crore. Since net indirect taxes = indirect taxes − subsidies, subsidies = ₹210 − ₹150 = ₹60 crore. ₹150 crore is the net tax amount, not subsidies, so option B is correct.
02 The market price of a good is stated as ₹590. Indirect tax is 20 percent of factor cost and subsidy is ₹10. If factor cost is ₹500, is the stated market price correct?
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Answer and explanation
Correct answer: A. Yes, because the correct market price is ₹590
Explanation: The governing relation is market price = factor cost + indirect taxes − subsidies. Indirect tax equals 20% of ₹500, so it is ₹100. Therefore, market price = ₹500 + ₹100 − ₹10 = ₹590. The computed value exactly equals the stated price, so option A is correct. The other options result from omitting the subsidy, adding it, or miscalculating the tax.
03 If net indirect taxes are 10 percent of market price and market price is ₹2,000 crore, what is factor cost?
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Answer and explanation
Correct answer: B. ₹1,800 crore
Explanation: The relationship is market price = factor cost + net indirect taxes. Net indirect taxes are 10% of the market price, so they equal 0.10 × ₹2,000 crore = ₹200 crore. Rearranging, factor cost = market price − net indirect taxes = ₹2,000 − ₹200 = ₹1,800 crore. Option C confuses market price with factor cost, while A and D do not follow the stated 10% deduction.
04 If net indirect taxes are 12 percent of factor cost and factor cost is ₹2,500 crore, what is market price?
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Answer and explanation
Correct answer: C. ₹2,800 crore
Explanation: The governing formula is market price = factor cost + net indirect taxes. Net indirect taxes equal 12% of factor cost: 0.12 × ₹2,500 crore = ₹300 crore. Therefore, market price = ₹2,500 + ₹300 = ₹2,800 crore. Option B omits the taxes, option A subtracts an amount, and option D adds too much. Hence, option C is the only correct answer.
05 If indirect taxes are ₹300 crore and subsidies are 40 percent of indirect taxes, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹180 crore
Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Subsidies equal 40% of ₹300 crore, so subsidies = 0.40 × ₹300 = ₹120 crore. Therefore, net indirect taxes = ₹300 − ₹120 = ₹180 crore. Option A is only the subsidy amount, option C subtracts the wrong amount, and option D adds tax and subsidy instead of finding their net difference. Thus B is correct.
06 If the ratio of output at market price to output at factor cost is 11:10 and factor cost is ₹3,000 crore, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹300 crore
Explanation: Use market price = factor cost + net indirect taxes. In the ratio 11:10, the factor-cost value of 10 parts equals ₹3,000 crore, so one part equals ₹300 crore. Market-price output is 11 parts, or ₹3,300 crore. The difference is ₹3,300 − ₹3,000 = ₹300 crore, which is the net indirect tax. Therefore, option B is correct.
07 If the ratio of factor cost to market price is (21:20) and market price is ₹4,000 crore then what are net indirect taxes?
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Answer and explanation
Correct answer: B. Negative ₹200 crore
Explanation: The governing relationship is Market Price = Factor Cost + Net Indirect Taxes, so NIT = MP − FC. From FC:MP = 21:20 and MP = ₹4,000 crore, factor cost is 4,000 × 21/20 = ₹4,200 crore. Therefore, NIT = 4,000 − 4,200 = −₹200 crore. The negative sign means subsidies exceed indirect taxes by ₹200 crore. Thus option B is correct; option A ignores the sign, while C and D use an incorrect ratio calculation.
08 Market price is ₹2,160 crore and it is 108 percent of factor cost. What is factor cost?
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Answer and explanation
Correct answer: B. ₹2,000 crore
Explanation: The governing percentage principle is that if market price equals 108% of factor cost, then MP = 1.08 × FC. Rearranging gives FC = MP/1.08 = ₹2,160/1.08 = ₹2,000 crore. Hence option B is correct. Multiplying ₹2,160 by 1.08 gives ₹2,332.8 crore, but that would incorrectly increase the already known market price instead of recovering the original factor cost. The other values do not satisfy the stated 108% relationship.
09 Factor cost is ₹2,200 crore and it is 110 percent of market price. What is market price?
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Answer and explanation
Correct answer: B. ₹2,000 crore
Explanation: Use the stated percentage relationship: Factor Cost = 110% of Market Price = 1.10 × MP. Therefore, MP = ₹2,200/1.10 = ₹2,000 crore. Option B is correct. ₹2,420 crore comes from multiplying ₹2,200 by 1.10, but ₹2,200 is already the factor cost, which is the 110% value; it must be divided by 1.10 to find the base market price. The other choices do not produce a 110% factor-cost figure.
10 If GDP at market price is ₹3,600 crore and net indirect taxes are 1/9 of market price then what is GDP at factor cost?
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Answer and explanation
Correct answer: C. ₹3,200 crore
Explanation: The governing identity is GDP at factor cost = GDP at market price − Net Indirect Taxes. Net indirect taxes equal 1/9 of ₹3,600 crore, so NIT = 3,600 × 1/9 = ₹400 crore. Therefore, GDP at factor cost = ₹3,600 − ₹400 = ₹3,200 crore. Option C is correct. Options A and B subtract too much, while option D adds the tax instead of removing it when converting from market price to factor cost.
11 If net indirect taxes are 1/8 of factor cost and market price is ₹2,700 crore then what is factor cost?
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Answer and explanation
Correct answer: C. ₹2,400 crore
Explanation: Let factor cost be x crore. By the governing identity, market price = factor cost + net indirect taxes. Since NIT = x/8, ₹2,700 = x + x/8 = 9x/8. Thus x = 2,700 × 8/9 = ₹2,400 crore. Option C is correct. At ₹2,400 crore, NIT is ₹300 crore and their sum is ₹2,700 crore. The other options fail this equation and do not reproduce the stated market price.
12 Market price is 9/10 of factor cost and market price is ₹1,800 crore. What are net indirect taxes?
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Answer and explanation
Correct answer: B. Negative ₹200 crore
Explanation: The governing formula is NIT = Market Price − Factor Cost. Since MP = 9/10 of FC and MP is ₹1,800 crore, factor cost = 1,800 × 10/9 = ₹2,000 crore. Hence NIT = 1,800 − 2,000 = −₹200 crore. Option B is correct. The negative value indicates that subsidies exceed indirect taxes by ₹200 crore. A positive ₹200 crore reverses the subtraction, while ₹180 crore and −₹180 crore use the wrong amount.
13 Initially market price is ₹2,500 crore and factor cost is ₹2,300 crore. Later market price rises by ₹100 crore and factor cost rises by ₹40 crore. What is the change in net indirect taxes?
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Answer and explanation
Correct answer: B. Increase of ₹60 crore
Explanation: Net indirect taxes equal market price minus factor cost. Initially, NIT = ₹2,500 − ₹2,300 = ₹200 crore. Later, market price is ₹2,600 crore and factor cost is ₹2,340 crore, so new NIT = ₹260 crore. The change is ₹260 − ₹200 = ₹60 crore increase. Option B is correct. Equivalently, NIT changes by the rise in market price minus the rise in factor cost: ₹100 − ₹40 = ₹60 crore.
14 Initially factor cost exceeded market price by ₹50 crore. Later net indirect taxes increased by ₹30 crore. What will be the new relation between market price and factor cost?
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Answer and explanation
Correct answer: B. Market price will be ₹20 crore lower than factor cost
Explanation: Because NIT = market price − factor cost, the initial statement means NIT = −₹50 crore: market price was ₹50 crore below factor cost. An increase of ₹30 crore changes NIT to −₹50 + ₹30 = −₹20 crore. Thus market price remains below factor cost, but only by ₹20 crore. Option B is correct. It does not become −₹80 crore because the NIT increase reduces the negative gap, and it does not become positive or zero.
15 If net indirect taxes fall from ₹100 crore to negative ₹20 crore, what is the total change?
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Answer and explanation
Correct answer: C. Decrease of ₹120 crore
Explanation: The governing idea is that a change equals final value minus initial value. Here, final NIT = −₹20 crore and initial NIT = ₹100 crore. Therefore, change = (−20) − 100 = −₹120 crore. The negative sign indicates a decrease, so the correct answer is option C: a decrease of ₹120 crore. Option A would result from ignoring that the final value is negative; option D gives the wrong direction.
16 If net indirect taxes rise from negative ₹60 crore to ₹40 crore, what is the change in the gap between market price and factor cost?
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Answer and explanation
Correct answer: D. Increase of ₹100 crore
Explanation: The governing relationship is MP − FC = NIT, so the gap between market price and factor cost is equal to net indirect taxes. Initially the gap was −₹60 crore and finally it was ₹40 crore. Change = 40 − (−60) = ₹100 crore, an increase. Therefore, option D is correct. Options B and C do not fully account for the movement across zero and the initial negative sign.
17 If factor cost is the same in two years, but net indirect taxes are ₹180 crore in the first year and negative ₹20 crore in the second year, what is the change in market price?
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Answer and explanation
Correct answer: C. Decrease of ₹200 crore
Explanation: The governing identity is MP = FC + NIT. Since factor cost remains unchanged, any change in market price must equal the change in net indirect taxes. NIT changes from ₹180 crore to −₹20 crore: change = (−20) − 180 = −₹200 crore. Thus market price decreases by ₹200 crore, making option C correct. The ₹160 crore option ignores the negative sign, while option D reverses the direction.
18 If two economies have the same market price, but net indirect taxes are ₹250 crore in the first and ₹100 crore in the second, whose factor cost is higher and by how much?
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Answer and explanation
Correct answer: B. Second is higher by ₹150 crore
Explanation: Use FC = MP − NIT. With the same market price, the economy paying or including the smaller net indirect tax has the larger factor cost. The first economy has NIT of ₹250 crore and the second ₹100 crore, a difference of ₹150 crore. Therefore, the second economy’s factor cost is ₹150 crore higher, so option B is correct. The higher tax in the first economy reduces its factor-cost component relative to the same MP.
19 Two firms have the same factor cost. The first faces an indirect tax of ₹90 and a subsidy of ₹20, while the second faces an indirect tax of ₹70 and a subsidy of ₹5. Whose market price will be higher?
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Answer and explanation
Correct answer: A. First is higher by ₹5
Explanation: Net indirect tax equals indirect tax minus subsidy. For the first firm, NIT = 90 − 20 = ₹70. For the second, NIT = 70 − 5 = ₹65. Since factor cost is equal, MP = FC + NIT means the first firm’s market price is ₹5 higher. Thus option A is correct. Comparing only gross taxes would give the wrong result because subsidies must be deducted.
20 If GNP at factor cost is ₹18,300 crore and net indirect taxes are ₹1,050 crore, what will be GNP at market price?
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Answer and explanation
Correct answer: C. ₹19,350 crore
Explanation: The governing conversion rule is GNP at market price = GNP at factor cost + net indirect taxes, because market price includes the tax effect net of subsidies. Therefore, GNP at market price = ₹18,300 crore + ₹1,050 crore = ₹19,350 crore. Hence, option C is correct. Option A incorrectly subtracts the taxes, while option B ignores them and option D adds an excessive amount.
21 If NNP at market price is ₹16,200 crore, indirect taxes are ₹1,150 crore and subsidies are ₹300 crore, what will be national income?
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Answer and explanation
Correct answer: B. ₹15,350 crore
Explanation: National income is NNP at factor cost. To convert NNP at market price into NNP at factor cost, subtract net indirect taxes, where net indirect taxes = indirect taxes − subsidies = ₹1,150 − ₹300 = ₹850 crore. Thus, national income = ₹16,200 − ₹850 = ₹15,350 crore. Option B is correct. Option A subtracts the gross tax figure, whereas options C and D do not apply the required adjustment correctly.
22 If market price is 14 percent higher than factor cost and factor cost is ₹7,500 crore, what will be market price?
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Answer and explanation
Correct answer: C. ₹8,550 crore
Explanation: When market price is 14 percent higher than factor cost, calculate 14 percent of the original factor-cost amount and add it to that amount. Fourteen percent of ₹7,500 crore is ₹1,050 crore. Therefore, market price = ₹7,500 + ₹1,050 = ₹8,550 crore, so option C is correct. ₹8,400 crore reflects only a 12 percent increase, while the other figures use an incorrect percentage adjustment.
23 If factor cost is 8 percent higher than market price and market price is ₹10,000 crore, what will be factor cost?
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Answer and explanation
Correct answer: C. ₹10,800 crore
Explanation: The percentage comparison is based on market price because factor cost is stated to be 8 percent higher than market price. Eight percent of ₹10,000 crore is ₹800 crore. Hence, factor cost = ₹10,000 + ₹800 = ₹10,800 crore, making option C correct. Option A represents an 8 percent decrease, option B shows no change, and option D applies an excessive increase.
24 If net indirect taxes are 6 percent of market price and market price is ₹20,000 crore, what will be factor cost?
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Answer and explanation
Correct answer: C. ₹18,800 crore
Explanation: Net indirect taxes equal 6 percent of market price, so their amount is 6% × ₹20,000 crore = ₹1,200 crore. Since market price = factor cost + net indirect taxes, factor cost = market price − net indirect taxes = ₹20,000 − ₹1,200 = ₹18,800 crore. Therefore, option C is correct. The other options result from using an incorrect percentage or subtracting the wrong amount.
25 If net indirect taxes are 12 percent of factor cost and factor cost is ₹10,000 crore what will be market price?
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Answer and explanation
Correct answer: C. ₹11,200 crore
Explanation: The governing relationship is Market Price = Factor Cost + Net Indirect Taxes. Since net indirect taxes are 12% of ₹10,000 crore, they equal 0.12 × 10,000 = ₹1,200 crore. Therefore, market price = ₹10,000 + ₹1,200 = ₹11,200 crore, so option C is correct. Option A uses only 1.2%, while option D treats the tax as 20% of factor cost.
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