If net indirect taxes rise from negative ₹60 crore to ₹40 crore, what is the change in the gap between market price and factor cost?
Answer and explanation
Correct answer: Increase of ₹100 crore
The governing relationship is MP − FC = NIT, so the gap between market price and factor cost is equal to net indirect taxes. Initially the gap was −₹60 crore and finally it was ₹40 crore. Change = 40 − (−60) = ₹100 crore, an increase. Therefore, option D is correct. Options B and C do not fully account for the movement across zero and the initial negative sign.
Frequently asked questions
What is the correct answer to this question?
Increase of ₹100 crore
Why is this the correct answer?
The governing relationship is MP − FC = NIT, so the gap between market price and factor cost is equal to net indirect taxes. Initially the gap was −₹60 crore and finally it was ₹40 crore. Change = 40 − (−60) = ₹100 crore, an increase. Therefore, option D is correct. Options B and C do not fully account for the movement across zero and the initial 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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