What is deducted from Gross domestic product (GDP) at market prices to calculate GDP at factor cost?
Show answer & explanation
Correct answer: A
Explanation
Correct Answer:
Option 1 (Net Product Tax)
Explanation:
To calculate GDP at factor cost, net indirect taxes are subtracted from GDP at market price. Market price includes taxes and subtracts government subsidies. Therefore, to obtain the actual cost of production, we subtract taxes and add subsidies.
Indirect Factors:
Factor Cost: This is the amount paid to factors of production (land, labor, capital) for their contribution.
Market Price: This is the price at which a product is sold to consumers in the market. This includes government taxes.
Net Indirect Tax (NIT): This is the difference between 'indirect taxes' and 'subsidies'.
Depreciation: It is used to calculate net value from gross value.
Possible questions for upcoming exams:
What is the main difference between gross domestic product (GDP) and net domestic product (NDP)? (Answer: Depreciation)
What is national income generally calculated based on? (Answer: Net National Product at Factor Cost - NNPfc)
What is the base year for calculating GDP in India? (Answer: 2011-12)