Output at factor cost is constant and net indirect taxes increase. What happens to output at market price?
Answer and explanation
Correct answer: It will increase
The governing relationship is output at market price = output at factor cost + net indirect taxes. Factor-cost output is constant, so an increase in net indirect taxes raises the market-price measure by the same direction. Therefore, output at market price increases and option B is correct. It would remain unchanged only if net indirect taxes did not change.
Frequently asked questions
What is the correct answer to this question?
It will increase
Why is this the correct answer?
The governing relationship is output at market price = output at factor cost + net indirect taxes. Factor-cost output is constant, so an increase in net indirect taxes raises the market-price measure by the same direction. Therefore, output at market price increases and option B is correct. It would remain unchanged only if net indirect taxes did not change.
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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