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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 Output at market price is ₹5,600 crore and factor cost is 6% higher than market price. What is factor cost?
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Answer and explanation
Correct answer: C. ₹5,936 crore
Explanation: The governing idea is a percentage increase from the stated base. Factor cost is 6% greater than the market-price output, so first calculate 6% of ₹5,600 crore: 0.06 × 5,600 = ₹336 crore. Add this increase to the original amount: ₹5,600 + ₹336 = ₹5,936 crore. Thus option C is correct. Option B ignores the increase, while A decreases the value and D applies an incorrect 10% increase.
02 If GNP at market price is ₹3,850 crore and GNP at factor cost is ₹3,620 crore, while indirect taxes are ₹310 crore, what are subsidies?
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Answer and explanation
Correct answer: B. ₹80 crore
Explanation: Use the identity GNP at market price = GNP at factor cost + indirect taxes − subsidies. The difference between the two GNP measures is ₹3,850 − ₹3,620 = ₹230 crore, which is net indirect taxes. Since net indirect taxes = indirect taxes − subsidies, subsidies = ₹310 − ₹230 = ₹80 crore. Therefore option B is correct; ₹230 crore is the net tax, not the subsidy.
03 The factor cost of a good is ₹800. Indirect tax is 15% of factor cost and subsidy is ₹25. What is the market price?
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Answer and explanation
Correct answer: A. ₹895
Explanation: The governing formula is market price = factor cost + indirect tax − subsidy. The indirect tax equals 15% of ₹800, or 0.15 × 800 = ₹120. Substituting the values gives market price = ₹800 + ₹120 − ₹25 = ₹895. Therefore option A is correct. Adding the subsidy instead of subtracting it would give an incorrect result, and the other options do not follow the stated formula.
04 If net indirect taxes are 12% of market price and market price is ₹2,500 crore, what is factor cost?
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Answer and explanation
Correct answer: B. ₹2,200 crore
Explanation: Net indirect taxes equal the difference between market price and factor cost. First calculate the tax amount: 12% of ₹2,500 crore = 0.12 × 2,500 = ₹300 crore. Therefore, factor cost = market price − net indirect taxes = ₹2,500 − ₹300 = ₹2,200 crore. Option B is correct. Option C would subtract only ₹200 crore, while the larger values incorrectly add or fail to deduct the tax.
05 If net indirect taxes are 18% of factor cost and factor cost is ₹3,000 crore, what is market price?
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Answer and explanation
Correct answer: C. ₹3,540 crore
Explanation: The relationship is market price = factor cost + net indirect taxes. Net indirect taxes are 18% of ₹3,000 crore: 0.18 × 3,000 = ₹540 crore. Adding this to factor cost gives market price = ₹3,000 + ₹540 = ₹3,540 crore. Hence option C is correct. Option B reflects a 12% addition, option A an incorrect 6% addition, and option D uses a 20% addition rather than the stated 18%.
06 If indirect taxes are ₹450 crore and subsidies are 30% of indirect taxes, what are net indirect taxes?
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Answer and explanation
Correct answer: C. ₹315 crore
Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Subsidies equal 30% of ₹450 crore, so subsidies = 0.30 × 450 = ₹135 crore. Thus net indirect taxes = ₹450 − ₹135 = ₹315 crore. Option C is correct. ₹135 crore is only the subsidy amount, while ₹585 crore incorrectly adds the two amounts; ₹285 crore results from an incorrect subtraction.
07 If subsidies are ₹210 crore and they are 70% of indirect taxes, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹90 crore
Explanation: The governing concept is the distinction between subsidies and net indirect taxes. Since ₹210 crore represents 70% of indirect taxes, indirect taxes = ₹210 ÷ 0.70 = ₹300 crore. Net indirect taxes equal indirect taxes minus subsidies, so ₹300 − ₹210 = ₹90 crore. Therefore option B is correct. ₹210 crore is the subsidy itself, ₹300 crore is gross indirect tax, and the other values do not satisfy the stated percentages.
08 If the ratio of market price to factor cost is 13:12 and factor cost is ₹4,800 crore, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹400 crore
Explanation: The governing relation is market price = factor cost + net indirect taxes. In the ratio 13:12, the 12 parts representing factor cost equal ₹4,800 crore, so one part is ₹4,800 ÷ 12 = ₹400 crore. Market price exceeds factor cost by one part, because 13 − 12 = 1. Therefore net indirect taxes are ₹400 crore, making option B correct; ₹5,200 crore is the market price itself.
09 Market price is ₹3,360 crore and it is 112 percent of factor cost. What is factor cost?
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Answer and explanation
Correct answer: B. ₹3,000 crore
Explanation: The governing concept is reverse percentage calculation. If market price is 112% of factor cost, then 3,360 = 1.12 × factor cost. Therefore, factor cost = 3,360 ÷ 1.12 = 3,360 × 100/112 = ₹3,000 crore. Option D incorrectly calculates 112% of ₹3,360 instead of recovering the original amount, while the other values do not satisfy the stated percentage relationship.
10 Factor cost is ₹3,450 crore and it is 115 percent of market price. What is market price?
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Answer and explanation
Correct answer: B. ₹3,000 crore
Explanation: Use the reverse-percentage rule: when factor cost is 115% of market price, 3,450 = 1.15 × market price. Thus market price = 3,450 ÷ 1.15 = 3,450 × 100/115 = ₹3,000 crore. Because factor cost exceeds market price, net indirect taxes are negative, which is economically consistent with subsidies exceeding indirect taxes. Option D takes 115% of the given amount and reverses the relationship.
11 If the ratio of indirect taxes to subsidies is 7:3 and net indirect taxes are ₹240 crore then what are indirect taxes?
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Answer and explanation
Correct answer: C. ₹420 crore
Explanation: Net indirect taxes equal indirect taxes minus subsidies. Let indirect taxes and subsidies be 7x and 3x respectively. Then NIT = 7x − 3x = 4x = ₹240 crore, so x = ₹60 crore. Indirect taxes = 7x = 7 × 60 = ₹420 crore. Thus option C is correct; ₹240 crore is the net amount, not the tax component itself.
12 If the ratio of indirect taxes to subsidies is 4:7 and net indirect taxes are negative ₹150 crore then what are subsidies?
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Answer and explanation
Correct answer: D. ₹350 crore
Explanation: Because subsidies exceed indirect taxes, NIT = Indirect Taxes − Subsidies is negative. Let taxes = 4x and subsidies = 7x. Then 4x − 7x = −3x = −₹150 crore, so x = ₹50 crore. Subsidies = 7x = 7 × 50 = ₹350 crore. Option D is correct; using the absolute net amount as subsidies would ignore the given 4:7 ratio.
13 Initially factor cost exceeded market price by ₹70 crore. Later net indirect taxes increased by ₹45 crore. What will be the new relation?
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Answer and explanation
Correct answer: B. Market price will be ₹25 crore lower than factor cost
Explanation: Initially, factor cost exceeded market price by ₹70 crore, so NIT = Market Price − Factor Cost = −₹70 crore. An increase of ₹45 crore changes NIT to −70 + 45 = −₹25 crore. A negative NIT of ₹25 crore means market price remains ₹25 crore below factor cost. Hence option B is correct; it does not become positive or reach equality.
14 If (MP=FC) and subsidies are ₹175 crore then what must indirect taxes be?
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Answer and explanation
Correct answer: C. ₹175 crore
Explanation: The governing relation is MP − FC = net indirect taxes, and net indirect taxes equal indirect taxes minus subsidies. Since MP equals FC, the net indirect tax is zero. Therefore, indirect taxes − ₹175 crore = 0, so indirect taxes must be ₹175 crore. Option C is correct; zero would ignore the subsidy, while the other amounts would create a non-zero difference between MP and FC.
15 If GDP at market price is ₹4,800 crore while depreciation is ₹350 crore and net indirect taxes are ₹275 crore then what is NDP at factor cost?
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Answer and explanation
Correct answer: C. ₹4,175 crore
Explanation: Use two standard conversions. First, subtract depreciation from GDP at market price to obtain NDP at market price: ₹4,800 − ₹350 = ₹4,450 crore. Next, subtract net indirect taxes to move from market price to factor cost: ₹4,450 − ₹275 = ₹4,175 crore. Thus option C is correct. Option B stops after depreciation, whereas option D incorrectly adds the tax adjustment.
16 If GNP at factor cost is ₹5,300 crore while depreciation is ₹420 crore and net indirect taxes are ₹230 crore then what is NNP at market price?
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Answer and explanation
Correct answer: C. ₹5,110 crore
Explanation: To convert GNP at factor cost into NNP at market price, first remove depreciation and then add net indirect taxes. NNP at factor cost = ₹5,300 − ₹420 = ₹4,880 crore. NNP at market price = ₹4,880 + ₹230 = ₹5,110 crore. Therefore option C is correct. Option B omits the market-price adjustment, while option D adds depreciation instead of subtracting it.
17 GDP at market price is ₹6,200 crore. Depreciation is ₹500 crore and net indirect taxes are negative ₹150 crore. What is NDP at factor cost?
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Answer and explanation
Correct answer: C. ₹5,850 crore
Explanation: First convert GDP to NDP at market price by deducting depreciation: ₹6,200 − ₹500 = ₹5,700 crore. The relation NDP at factor cost = NDP at market price − net indirect taxes must then be applied. Because net indirect taxes are −₹150 crore, subtracting them means adding ₹150: ₹5,700 − (−₹150) = ₹5,850 crore. Hence option C is correct.
18 If output at market price is ₹27,000 crore and output at factor cost is ₹25,300 crore while subsidies are ₹550 crore, what will be indirect taxes?
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Answer and explanation
Correct answer: C. ₹2,250 crore
Explanation: The difference between market price and factor cost gives net indirect taxes: ₹27,000 − ₹25,300 = ₹1,700 crore. Since net indirect taxes = indirect taxes − subsidies, indirect taxes = net indirect taxes + subsidies = ₹1,700 + ₹550 = ₹2,250 crore. Therefore option C is correct. Option B is only the net amount, not the gross indirect tax.
19 If indirect taxes are ₹1,300 crore and net indirect taxes are minus ₹250 crore, what will be subsidies?
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Answer and explanation
Correct answer: C. ₹1,550 crore
Explanation: Use net indirect taxes = indirect taxes − subsidies. Let subsidies be S. Then −₹250 = ₹1,300 − S. Rearranging gives S = ₹1,300 + ₹250 = ₹1,550 crore. Hence option C is correct. The negative net figure shows that subsidies exceed indirect taxes by ₹250 crore; ₹1,050 crore would instead produce a positive net tax of ₹250 crore.
20 If GNP at factor cost is ₹20,600 crore and net indirect taxes are ₹1,200 crore, what will be GNP at market price?
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Answer and explanation
Correct answer: C. ₹21,800 crore
Explanation: The governing conversion is GNP at market price = GNP at factor cost + net indirect taxes. Market price includes the effect of indirect taxes after subsidies, whereas factor cost measures factor payments. Therefore, GNP at market price = ₹20,600 + ₹1,200 = ₹21,800 crore. Option A subtracts the adjustment, option B ignores it, and option D adds an incorrect amount.
21 If NNP at market price is ₹18,900 crore, indirect taxes are ₹1,300 crore and subsidies are ₹350 crore, what will be national income?
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Answer and explanation
Correct answer: B. ₹17,950 crore
Explanation: National income is NNP at factor cost. To convert NNP at market price to NNP at factor cost, subtract net indirect taxes. Net indirect taxes = indirect taxes − subsidies = ₹1,300 − ₹350 = ₹950 crore. Hence, national income = ₹18,900 − ₹950 = ₹17,950 crore. Option A uses an incorrect adjustment, while C ignores taxes and subsidies and D adds them.
22 If national income is ₹15,700 crore and net indirect taxes are minus ₹320 crore, what will be NNP at market price?
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Answer and explanation
Correct answer: B. ₹15,380 crore
Explanation: National income is NNP at factor cost. The relationship is NNP at market price = NNP at factor cost + net indirect taxes. Here the net indirect tax is −₹320 crore, so the calculation is ₹15,700 + (−₹320) = ₹15,380 crore. The negative value means subsidies exceed indirect taxes and therefore lowers market price relative to factor cost. Thus option B is correct.
23 If GDP at market price is ₹31,000 crore, depreciation is ₹2,500 crore and net indirect taxes are ₹1,750 crore, what will be NDP at factor cost?
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Answer and explanation
Correct answer: B. ₹26,750 crore
Explanation: Use the two required adjustments: NDP at factor cost = GDP at market price − depreciation − net indirect taxes. First, subtract depreciation to remove the gross component: ₹31,000 − ₹2,500 = ₹28,500 crore. Then subtract net indirect taxes to change market price to factor cost: ₹28,500 − ₹1,750 = ₹26,750 crore. Therefore option B is correct; option C stops after only one adjustment.
24 If NDP at factor cost is ₹21,800 crore, depreciation is ₹1,700 crore and net indirect taxes are ₹1,100 crore, what will be GDP at market price?
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Answer and explanation
Correct answer: C. ₹24,600 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. Thus GDP at market price = ₹21,800 + ₹1,700 + ₹1,100 = ₹24,600 crore. Option B adds depreciation but omits taxes; option D adds too much. Hence option C is correct.
25 In the initial year market price was ₹15,000 crore and factor cost was ₹13,800 crore. In the next year they became ₹16,800 crore and ₹15,200 crore. What was the change in net indirect taxes?
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Answer and explanation
Correct answer: C. Increase of ₹400 crore
Explanation: Net indirect taxes equal the difference between market price and factor cost. In the initial year, the gap was ₹15,000 − ₹13,800 = ₹1,200 crore. In the next year, it was ₹16,800 − ₹15,200 = ₹1,600 crore. The change was therefore ₹1,600 − ₹1,200 = ₹400 crore increase. Option D confuses the new level with the change, so option C is correct.
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