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What is the difference between market price and factor cost in GDP calculation?
- a)Market price includes indirect taxes, while factor cost excludes them.
- b)Market price excludes direct taxes, while factor cost includes them.
- c)Market price excludes depreciation, while factor cost includes it.
- d)Market price includes both direct and indirect taxes.
Correct answer is option 'A'. Can you explain this answer?
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What is the difference between market price and factor cost in GDP cal...
Market price includes indirect taxes like GST and customs duty, while factor cost excludes them.
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What is the difference between market price and factor cost in GDP cal...
Market price and factor cost are two different methods used to calculate the Gross Domestic Product (GDP) of a country. The GDP is a measure of the total value of goods and services produced within a country's borders in a specific period of time. Both market price and factor cost take into account different factors for the calculation.
1. Market Price:
- Market price is the price at which goods and services are bought and sold in the market.
- It includes the value of the goods or services produced as well as any indirect taxes levied on them.
- Indirect taxes are taxes imposed by the government on the production or sale of goods and services, such as sales tax or value-added tax.
- Market price also includes any subsidies provided by the government to producers, which effectively reduce the cost of production.
2. Factor Cost:
- Factor cost, also known as production cost or basic prices, is the cost incurred by producers in the production of goods and services.
- It excludes any indirect taxes or subsidies.
- Factor cost includes the actual cost of production, such as wages, salaries, rent, interest, and profits.
- It also includes depreciation, which is the decrease in the value of assets over time due to wear and tear or obsolescence.
Difference between Market Price and Factor Cost in GDP calculation:
- The main difference between market price and factor cost lies in the treatment of indirect taxes.
- Market price includes indirect taxes, while factor cost excludes them.
- Indirect taxes are considered as a part of the value of goods and services in the market price method because they are ultimately borne by the consumer. Including them in GDP calculation reflects the final price paid by the consumer.
- On the other hand, factor cost focuses on the cost incurred by producers, excluding the impact of indirect taxes. It provides a measure of the income generated by factors of production (labor, capital, land) without considering the tax burden on the consumer.
Conclusion:
In conclusion, the difference between market price and factor cost in GDP calculation lies in the treatment of indirect taxes. Market price includes indirect taxes, while factor cost excludes them. This difference reflects the perspective from which GDP is measured - market price focuses on the final price paid by the consumer, while factor cost focuses on the cost incurred by producers.
1. Market Price:
- Market price is the price at which goods and services are bought and sold in the market.
- It includes the value of the goods or services produced as well as any indirect taxes levied on them.
- Indirect taxes are taxes imposed by the government on the production or sale of goods and services, such as sales tax or value-added tax.
- Market price also includes any subsidies provided by the government to producers, which effectively reduce the cost of production.
2. Factor Cost:
- Factor cost, also known as production cost or basic prices, is the cost incurred by producers in the production of goods and services.
- It excludes any indirect taxes or subsidies.
- Factor cost includes the actual cost of production, such as wages, salaries, rent, interest, and profits.
- It also includes depreciation, which is the decrease in the value of assets over time due to wear and tear or obsolescence.
Difference between Market Price and Factor Cost in GDP calculation:
- The main difference between market price and factor cost lies in the treatment of indirect taxes.
- Market price includes indirect taxes, while factor cost excludes them.
- Indirect taxes are considered as a part of the value of goods and services in the market price method because they are ultimately borne by the consumer. Including them in GDP calculation reflects the final price paid by the consumer.
- On the other hand, factor cost focuses on the cost incurred by producers, excluding the impact of indirect taxes. It provides a measure of the income generated by factors of production (labor, capital, land) without considering the tax burden on the consumer.
Conclusion:
In conclusion, the difference between market price and factor cost in GDP calculation lies in the treatment of indirect taxes. Market price includes indirect taxes, while factor cost excludes them. This difference reflects the perspective from which GDP is measured - market price focuses on the final price paid by the consumer, while factor cost focuses on the cost incurred by producers.
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What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer?
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What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer?.
What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the difference between market price and factor cost in GDP calculation?a)Market price includes indirect taxes, while factor cost excludes them.b)Market price excludes direct taxes, while factor cost includes them.c)Market price excludes depreciation, while factor cost includes it.d)Market price includes both direct and indirect taxes.Correct answer is option 'A'. Can you explain this answer?.
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