If market price is ₹560 crore and net indirect taxes are negative ₹40 crore, what is the factor cost?
Answer and explanation
Correct answer: ₹600 crore
The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Rearranging gives Factor Cost = Market Price − Net Indirect Taxes. Substituting the values: Factor Cost = 560 − (−40) = 560 + 40 = ₹600 crore. A negative net tax means subsidies exceed indirect taxes; therefore, option B incorrectly subtracts 40 instead of subtracting a negative number. Option D is correct.
Frequently asked questions
What is the correct answer to this question?
₹600 crore
Why is this the correct answer?
The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Rearranging gives Factor Cost = Market Price − Net Indirect Taxes. Substituting the values: Factor Cost = 560 − (−40) = 560 + 40 = ₹600 crore. A negative net tax means subsidies exceed indirect taxes; therefore, option B incorrectly subtracts 40 instead of subtracting a negative number. Option D is correct.
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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