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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 Two economies have the same market price. Net indirect taxes are ₹320 crore in the first and ₹140 crore in the second. Whose factor cost will be higher and by how much?
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Answer and explanation
Correct answer: B. Second is higher by ₹180 crore
Explanation: The governing formula is FC = MP − NIT. With equal market prices, the economy having the smaller net indirect tax must have the larger factor cost. The second economy has NIT of ₹140 crore versus ₹320 crore in the first, a difference of ₹180 crore. Therefore, the second economy's factor cost is higher by ₹180 crore, so option B is correct.
02 Two firms have the same factor cost. The first faces an indirect tax of ₹110 and a subsidy of ₹35, while the second faces an indirect tax of ₹95 and a subsidy of ₹10. Whose market price will be higher?
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Answer and explanation
Correct answer: B. Second is higher by ₹10
Explanation: Market price equals factor cost plus net indirect taxes, where NIT = indirect tax − subsidy. For the first firm, NIT = ₹110 − ₹35 = ₹75. For the second, NIT = ₹95 − ₹10 = ₹85. Because factor costs are equal, the second firm's market price is higher by ₹85 − ₹75 = ₹10. Thus option B is correct.
03 If factor cost is x and net indirect taxes are 20 percent of factor cost while market price is ₹3,600 crore, what is the value of x?
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Answer and explanation
Correct answer: B. ₹3,000 crore
Explanation: Use MP = FC + NIT. Since FC = x and NIT is 20% of FC, NIT = 0.20x. Therefore, ₹3,600 = x + 0.20x = 1.20x. Dividing by 1.20 gives x = ₹3,600 ÷ 1.20 = ₹3,000 crore. Hence option B is correct. Option C would produce ₹3,840 crore after adding its 20% tax, not ₹3,600 crore.
04 If output at market price rises by 15 percent and output at factor cost rises by 11 percent, what information 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: The governing identity is net indirect taxes = output at market price − output at factor cost. The two growth rates cannot be directly subtracted because 15% and 11% apply to different initial bases. To calculate the new values and then compare their gap, the initial market-price and factor-cost amounts are required. Therefore option B is correct; the percentage difference alone is insufficient.
05 If net indirect taxes are 14% of factor cost and factor cost is ₹11,000 crore, what will be the market price?
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Answer and explanation
Correct answer: C. ₹12,540 करोड़
Explanation: The governing relation is Market Price = Factor Cost + Net Indirect Taxes. Net indirect taxes equal 14% of ₹11,000 crore, so they are 0.14 × 11,000 = ₹1,540 crore. Therefore, market price = ₹11,000 + ₹1,540 = ₹12,540 crore. Hence option C is correct. The other options result from using an incorrect percentage or adding the tax incorrectly.
06 If indirect taxes are five times subsidies and net indirect taxes are ₹1,200 crore, what will be the amount of subsidies?
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Answer and explanation
Correct answer: B. ₹300 करोड़
Explanation: Let subsidies be ₹x crore. Since indirect taxes are five times subsidies, indirect taxes equal ₹5x crore. By definition, net indirect taxes = indirect taxes − subsidies, so 1,200 = 5x − x = 4x. Thus x = 1,200 ÷ 4 = ₹300 crore. Option B is correct. For example, ₹300 crore of subsidies and ₹1,500 crore of taxes produce net taxes of ₹1,200 crore.
07 If subsidies are 30% higher than indirect taxes and indirect taxes are ₹1,200 crore, what will be the net indirect taxes?
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Answer and explanation
Correct answer: B. −₹360 करोड़
Explanation: Subsidies are 30% higher than ₹1,200 crore, so subsidies = 1.30 × 1,200 = ₹1,560 crore. Net indirect taxes are calculated as indirect taxes minus subsidies: ₹1,200 − ₹1,560 = −₹360 crore. Therefore option B is correct. The negative sign shows that subsidies exceed indirect taxes; ₹360 crore without the sign is not the net amount.
08 If the increase in indirect taxes exceeds the increase in subsidies by ₹140 crore, how will the gap between market price and factor cost change?
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Answer and explanation
Correct answer: A. It will rise by ₹140 crore
Explanation: The gap between market price and factor cost equals net indirect taxes, which are indirect taxes minus subsidies. If the increase in taxes is ₹140 crore greater than the increase in subsidies, net indirect taxes increase by ₹140 crore. Therefore, the market-price/factor-cost gap also rises by ₹140 crore. Option A is correct; doubling the amount or reversing the direction ignores the identity.
09 If factor cost is 91% of market price and market price is ₹40,000 crore, what will be the net indirect taxes?
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Answer and explanation
Correct answer: C. ₹3,600 करोड़
Explanation: Factor cost is 91% of market price, so factor cost = 0.91 × ₹40,000 crore = ₹36,400 crore. Net indirect taxes equal market price minus factor cost: ₹40,000 − ₹36,400 = ₹3,600 crore. Therefore option C is correct. The remaining 9% of market price is the net indirect tax component; using 9% of factor cost would give an incorrect result.
10 If market price is 95% of factor cost and factor cost is ₹24,000 crore, what will be the net indirect taxes?
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Answer and explanation
Correct answer: B. −₹1,200 करोड़
Explanation: Market price is 95% of factor cost, so market price = 0.95 × ₹24,000 crore = ₹22,800 crore. Net indirect taxes = market price − factor cost = ₹22,800 − ₹24,000 = −₹1,200 crore. Thus option B is correct. The negative value indicates that subsidies exceed indirect taxes by ₹1,200 crore. A positive answer reverses the required subtraction.
11 If net indirect taxes are 20 percent of factor cost and market price is ₹36,000 crore what will be factor cost?
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Answer and explanation
Correct answer: C. ₹30,000 crore
Explanation: Use Market Price = Factor Cost + Net Indirect Taxes. Let factor cost be F. Since net indirect taxes equal 20% of F, market price is F + 0.20F = 1.20F. Thus 1.20F = ₹36,000 crore, so F = 36,000 ÷ 1.20 = ₹30,000 crore. Option C is correct. The percentage is applied to factor cost, not directly to market price.
12 If net indirect taxes are 30 percent of market price and factor cost is ₹21,000 crore what will be market price?
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Answer and explanation
Correct answer: C. ₹30,000 crore
Explanation: Net indirect taxes are 30% of market price, so factor cost represents the remaining 70% of market price. Let market price be M. Then 0.70M = ₹21,000 crore. Dividing by 0.70 gives M = ₹30,000 crore. Hence option C is correct. A common mistake is to add 30% to factor cost, although the question defines the tax percentage with market price as its base.
13 If the ratio of indirect taxes to subsidies is (8:3) and net indirect taxes are ₹1,500 crore what will be indirect taxes?
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Answer and explanation
Correct answer: C. ₹2,400 crore
Explanation: Net indirect taxes equal indirect taxes minus subsidies. With the ratio 8:3, let indirect taxes be 8x and subsidies be 3x. Their difference is 5x, which equals ₹1,500 crore. Therefore x = ₹300 crore, and indirect taxes = 8x = 8 × 300 = ₹2,400 crore. Option C is correct; ₹1,800 crore would represent the subsidy amount, not indirect taxes.
14 If the ratio of indirect taxes to subsidies is (5:9) and net indirect taxes are minus ₹800 crore what will be subsidies?
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Answer and explanation
Correct answer: C. ₹1,800 crore
Explanation: Net indirect taxes equal indirect taxes minus subsidies. A negative value of ₹800 crore means subsidies exceed taxes by ₹800 crore. From the ratio 5:9, let taxes be 5x and subsidies be 9x. Their difference is 4x = ₹800 crore, so x = ₹200 crore. Subsidies are 9x = ₹1,800 crore, making option C correct.
15 If GDP at market price is ₹38,000 crore depreciation is ₹3,000 crore net factor income from abroad is ₹1,100 crore and net indirect taxes are ₹1,800 crore what will be national income?
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Answer and explanation
Correct answer: C. ₹34,300 crore
Explanation: National income is NNP at factor cost. Starting with GDP at market price, subtract depreciation to obtain NDP at market price, add NFIA to convert domestic to national, and subtract net indirect taxes to convert market price to factor cost. Therefore: ₹38,000 − ₹3,000 + ₹1,100 − ₹1,800 = ₹34,300 crore. Option C is correct. Option B omits NFIA and is only NDP at factor cost.
16 If NNP at market price is ₹23,400 crore, national income is ₹22,500 crore, and subsidies are ₹400 crore, what will be the indirect taxes?
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Answer and explanation
Correct answer: C. ₹1,300 crore
Explanation: The governing relation is NNP at market price = NNP at factor cost + net indirect taxes. Here, national income represents NNP at factor cost, so net indirect taxes = 23,400 − 22,500 = ₹900 crore. Since net indirect taxes = indirect taxes − subsidies, indirect taxes = 900 + 400 = ₹1,300 crore. Therefore, option C is correct; ₹900 crore is only the net amount.
17 If output at market price is ₹50,000 crore and output at factor cost is ₹46,800 crore, while indirect taxes are ₹4,100 crore, what will be the subsidies?
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Answer and explanation
Correct answer: C. ₹900 crore
Explanation: The difference between market price and factor cost equals net indirect taxes: ₹50,000 − ₹46,800 = ₹3,200 crore. Net indirect taxes equal indirect taxes minus subsidies. Therefore, 3,200 = 4,100 − subsidies, so subsidies = 4,100 − 3,200 = ₹900 crore. Option C is correct. ₹3,200 crore is the net indirect tax, not the subsidy.
18 If NDP at market price is ₹26,200 crore and NDP at factor cost is ₹24,900 crore, while indirect taxes fall by ₹250 crore and subsidies remain unchanged, what will be the new market price?
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Answer and explanation
Correct answer: B. ₹25,950 crore
Explanation: Initially, net indirect taxes are ₹26,200 − ₹24,900 = ₹1,300 crore. When indirect taxes fall by ₹250 crore and subsidies do not change, net indirect taxes also fall by ₹250 crore, becoming ₹1,050 crore. The new market-price NDP is therefore ₹24,900 + ₹1,050 = ₹25,950 crore. Hence, option B is correct.
19 GDP at market price is ₹42,000 crore, depreciation is ₹3,200 crore, indirect taxes are ₹2,300 crore, subsidies are ₹650 crore, and net factor income from abroad is −₹500 crore. What will be NDP at factor cost and national income respectively?
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Answer and explanation
Correct answer: A. ₹37,150 crore and ₹36,650 crore
Explanation: First compute net indirect taxes: 2,300 − 650 = ₹1,650 crore. NDP at factor cost = GDP at market price − depreciation − net indirect taxes = 42,000 − 3,200 − 1,650 = ₹37,150 crore. National income equals NDP at factor cost plus net factor income from abroad, so it is 37,150 − 500 = ₹36,650 crore. Thus, option A is correct.
20 If factor cost exceeds market price by ₹125 crore and indirect taxes are ₹75 crore, then what are the subsidies?
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Answer and explanation
Correct answer: D. ₹200 crore
Explanation: If factor cost exceeds market price by ₹125 crore, net indirect taxes are negative ₹125 crore because factor cost = market price − net indirect taxes. Using net indirect taxes = indirect taxes − subsidies, we get −125 = 75 − subsidies. Therefore, subsidies = 75 + 125 = ₹200 crore. Option D is correct; the negative sign indicates that subsidies exceed indirect taxes.
21 GNP at factor cost is ₹6,200 crore. Initial net indirect taxes were ₹310 crore. If indirect taxes rise by ₹95 crore and subsidies rise by ₹45 crore, what is the new market price?
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Answer and explanation
Correct answer: C. ₹6,560 crore
Explanation: The change in net indirect taxes equals the change in indirect taxes minus the change in subsidies: ₹95 − ₹45 = ₹50 crore. Therefore, new net indirect taxes = ₹310 + ₹50 = ₹360 crore. Converting GNP from factor cost to market price gives ₹6,200 + ₹360 = ₹6,560 crore. Hence, option C is correct.
22 If NDP at market price is ₹3,100 crore and NDP at factor cost is ₹2,920 crore, which tax-subsidy combination is possible?
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Answer and explanation
Correct answer: A. Indirect taxes ₹240 crore and subsidies ₹60 crore
Explanation: Use NDP at market price = NDP at factor cost + net indirect taxes. Hence net indirect taxes = ₹3,100 − ₹2,920 = ₹180 crore. For a proposed pair, indirect taxes − subsidies must equal ₹180 crore. Option A gives ₹240 − ₹60 = ₹180 crore. B gives ₹140 crore, C gives ₹150 crore, and D gives −₹180 crore, so only A is possible.
23 If net indirect taxes were initially ₹190 crore, indirect taxes fell by ₹50 crore, and subsidies rose by ₹35 crore, what will be the new net indirect taxes?
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Answer and explanation
Correct answer: B. ₹105 crore
Explanation: Net indirect taxes equal indirect taxes minus subsidies. A fall of ₹50 crore in taxes lowers the net amount by ₹50 crore, while a rise of ₹35 crore in subsidies lowers it by another ₹35 crore. Thus the total reduction is ₹85 crore, and the new value is ₹190 − ₹85 = ₹105 crore. Option A subtracts only one change, whereas C and D do not apply the stated decreases correctly.
24 The difference between market price and factor cost is ₹260 crore. If indirect taxes fall by ₹60 crore and subsidies fall by ₹25 crore, what will be the new difference?
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Answer and explanation
Correct answer: C. ₹225 crore
Explanation: The difference between market price and factor cost equals net indirect taxes. The change in net indirect taxes is change in taxes minus change in subsidies: (−₹60) − (−₹25) = −₹35 crore. Thus the original difference falls by ₹35 crore, giving ₹260 − ₹35 = ₹225 crore. C is correct; treating both falls as additions or ignoring the subsidy change produces the other distractors.
25 If market price remains constant and subsidies rise by ₹55 crore while indirect taxes fall by ₹20 crore, what is the change in factor cost?
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Answer and explanation
Correct answer: B. Increase of ₹75 crore
Explanation: Use MP = FC + NIT, so FC = MP − NIT. The rise in subsidies by ₹55 crore and fall in indirect taxes by ₹20 crore reduce net indirect taxes by ₹75 crore in total. With market price unchanged, factor cost must rise by ₹75 crore to preserve the equation. Hence B is correct; ₹35 crore would incorrectly offset the two changes instead of adding their effects on NIT.
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