Output at factor cost is constant and net indirect taxes decrease. What happens to output at market price?
Answer and explanation
Correct answer: It will decrease
The governing relation is output at market price = output at factor cost + net indirect taxes. With factor-cost output constant, a decrease in net indirect taxes reduces the amount added to it. Therefore, output at market price decreases, making option B correct. It would increase only if net indirect taxes rose; it would remain unchanged only if the net tax did not change. Nothing implies that output becomes zero.
Frequently asked questions
What is the correct answer to this question?
It will decrease
Why is this the correct answer?
The governing relation is output at market price = output at factor cost + net indirect taxes. With factor-cost output constant, a decrease in net indirect taxes reduces the amount added to it. Therefore, output at market price decreases, making option B correct. It would increase only if net indirect taxes rose; it would remain unchanged only if the net tax did not change. Nothing implies that output becomes zero.
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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