If indirect taxes are T and subsidies are S, which algebraic relation between market price and factor cost is correct?
Answer and explanation
Correct answer: MP = FC + T − S
Indirect taxes raise the price paid in the market, while subsidies reduce the effective market-price adjustment. Net indirect taxes are defined as T − S. The standard relationship is MP = FC + NIT, so substituting gives MP = FC + T − S. Hence option C is correct. Option A incorrectly adds subsidies, and options B and D subtract the tax even though taxes increase the market-price measure relative to factor cost.
Frequently asked questions
What is the correct answer to this question?
MP = FC + T − S
Why is this the correct answer?
Indirect taxes raise the price paid in the market, while subsidies reduce the effective market-price adjustment. Net indirect taxes are defined as T − S. The standard relationship is MP = FC + NIT, so substituting gives MP = FC + T − S. Hence option C is correct. Option A incorrectly adds subsidies, and options B and D subtract the tax even though taxes increase the market-price measure relative to 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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