Market Price & Factor Cost


The buyers purchase goods from the market and the price paid by them is known as ‘market price’. The sellers pay a part of this price as ‘indirect taxes’ to the Government.

(i) Indirect Taxes are those taxes which are levied by the government on sales and production and also on imports of the commodities in the form of sales tax, excise duties, custom duties etc. These taxes increase the market price of the commodities.

(ii) Subsides : Sometimes, Government gives financial help to the production units for selling their product at lower prices fixed by the government. Such help is given in case of those selected commodities whose production the Government wants to encourage. If we deduct these subsidies from indirect taxes, we get net indirect taxes.

(iii) Net Indirect Taxes : It is the difference between indirect tax and subsidy.

Net Indirect Tax = Indirect Tax – Subsidy

(iv) Value Added At Factor Cost

Value Added At Factor Cost (FC) = Value Added At Market Price (MP) – Net Indirect Tax

OR

Value Added At FC =  Value Added At MP – Indirect Tax + Subsidy

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Bibliography : NIOS – Economics

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