The market price of a good is ₹525. It has an indirect tax of ₹75 and a subsidy of ₹20. What is its factor cost?
Answer and explanation
Correct answer: ₹470
To convert market price into factor cost, subtract net indirect taxes. The formula is factor cost = market price − indirect taxes + subsidies. Thus, factor cost = ₹525 − ₹75 + ₹20 = ₹470. Therefore, option C is correct. ₹450 results from forgetting to add back the subsidy, while ₹430 and ₹580 use incorrect adjustments or signs.
Frequently asked questions
What is the correct answer to this question?
₹470
Why is this the correct answer?
To convert market price into factor cost, subtract net indirect taxes. The formula is factor cost = market price − indirect taxes + subsidies. Thus, factor cost = ₹525 − ₹75 + ₹20 = ₹470. Therefore, option C is correct. ₹450 results from forgetting to add back the subsidy, while ₹430 and ₹580 use incorrect adjustments or signs.
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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