If net indirect taxes are negative ₹50 crore and market price is ₹700 crore, what is factor cost?
Answer and explanation
Correct answer: ₹750 crore
The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Therefore, Factor Cost = Market Price − Net Indirect Taxes = 700 − (−50) = ₹750 crore. A negative net tax means subsidies exceed indirect taxes, so the factor-cost figure is higher than market price. Option A results from mishandling the negative sign.
Frequently asked questions
What is the correct answer to this question?
₹750 crore
Why is this the correct answer?
The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Therefore, Factor Cost = Market Price − Net Indirect Taxes = 700 − (−50) = ₹750 crore. A negative net tax means subsidies exceed indirect taxes, so the factor-cost figure is higher than market price. Option A results from mishandling the negative sign.
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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