If net indirect taxes rise from negative ₹110 crore to ₹70 crore, by how much does the gap between market price and factor cost change?
Answer and explanation
Correct answer: Increase of ₹180 crore
The governing identity is MP − FC = net indirect taxes, so the gap between market price and factor cost changes by the same amount as net indirect taxes. The change is ₹70 − (−₹110) = ₹180 crore. Because a negative amount is subtracted, the magnitudes add. Thus the gap increases by ₹180 crore. The other choices fail to account correctly for the initial negative value.
Frequently asked questions
What is the correct answer to this question?
Increase of ₹180 crore
Why is this the correct answer?
The governing identity is MP − FC = net indirect taxes, so the gap between market price and factor cost changes by the same amount as net indirect taxes. The change is ₹70 − (−₹110) = ₹180 crore. Because a negative amount is subtracted, the magnitudes add. Thus the gap increases by ₹180 crore. The other choices fail to account correctly for the initial negative value.
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.
