RAS question
GDP at market price is equal to:
Correct answer: (B) GDP at factor cost + Net indirect taxes.
GDP at market price is equal to GDP at factor cost plus net indirect taxes, where net indirect taxes mean indirect taxes minus subsidies.
Explanation
GDP at factor cost values domestic output by the payments received by factors of production; it excludes taxes. Market price is the price paid by consumers, so it includes the tax element that raises prices and adjusts for subsidies that lower them. NCERT states that factor cost does not include any tax and that, to arrive at market prices, total indirect taxes less total subsidies must be added to factor cost. Therefore, GDP at market price = GDP at factor cost + net indirect taxes, with net indirect taxes defined as indirect taxes minus subsidies.
Why the other options are wrong
- (A) Subtracting net indirect taxes moves in the opposite direction: market price includes the tax element, so net indirect taxes have to be added to factor cost.
- (C) NDP plus depreciation converts a net measure into a gross measure, but it does not add net indirect taxes, so it does not give GDP at market price.
- (D) GNP minus depreciation gives a net national measure, NNP, not a domestic gross measure valued at market price.
Concept
This tests national income accounting, especially the conversion between factor cost and market price. RAS often asks these identities because a small sign error changes the aggregate being measured.