If GDP at market price is 1500, indirect taxes are 210, and subsidies are 60, what is GDP at factor cost?
Answer and explanation
Correct answer: 1350
To convert GDP at market price into GDP at factor cost, subtract net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies: 210 − 60 = 150. Therefore, GDP at factor cost = 1500 − 150 = 1350. Equivalently, use GDPFC = GDPMP − indirect taxes + subsidies. Thus option A is correct; subsidies reduce the difference between market price and factor cost.
Frequently asked questions
What is the correct answer to this question?
1350
Why is this the correct answer?
To convert GDP at market price into GDP at factor cost, subtract net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies: 210 − 60 = 150. Therefore, GDP at factor cost = 1500 − 150 = 1350. Equivalently, use GDPFC = GDPMP − indirect taxes + subsidies. Thus option A is correct; subsidies reduce the difference between market price and factor cost.
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.
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