Which of the following statements about indirect taxes and subsidies is CORRECT in the context of national income accounting?

hard Q10 of 15

Economic Awareness - Sectors of Indian Economy

AIndirect taxes are payments to factors of production included in GDP at factor cost

BIndirect taxes increase the market price but are excluded from GDP at factor cost

CSubsidies increase the market price of goods and services

DSubsidies are added to GDP at market price to calculate GDP at market price

Step-by-Step Solution

Step 1: Understand the role of indirect taxes and subsidies
Indirect taxes increase the market price but are not payments to factors, so excluded from GDP at factor cost. Subsidies reduce market price.
Step 2: Identify correct statement
Indirect taxes increase market price but excluded from factor cost.
Final Answer:
Indirect taxes increase the market price but are excluded from GDP at factor cost → Option B
Quick Check:
IT raises MP, excluded from FC ✅

Quick Trick: Remember indirect taxes raise market price but are not factor payments.

Common Mistakes:

Confusing subsidies as increasing market price or indirect taxes as factor payments.

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