How is a subsidy given to a producer treated when converting factor cost into market price?
Answer and explanation
Correct answer: It is subtracted from indirect taxes
The governing concept is net indirect tax, defined as indirect taxes minus subsidies. When factor cost is converted into market price, net indirect taxes are added: market price = factor cost + indirect taxes − subsidies. Thus, a producer subsidy is subtracted from indirect taxes, making option B correct. Depreciation concerns the loss of fixed-capital value, while factor income is a separate income concept.
Frequently asked questions
What is the correct answer to this question?
It is subtracted from indirect taxes
Why is this the correct answer?
The governing concept is net indirect tax, defined as indirect taxes minus subsidies. When factor cost is converted into market price, net indirect taxes are added: market price = factor cost + indirect taxes − subsidies. Thus, a producer subsidy is subtracted from indirect taxes, making option B correct. Depreciation concerns the loss of fixed-capital value, while factor income is a separate income concept.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Aggregates related to national income - Market price and factor cost.
Student feedback
Was this question useful?
👍 0 Helpful 👎 0 Not helpful
Yes 0% No 0%
0 responsesStudent Reviews
No published reviews yet.
