WBCS.LIVE practice question

The difference between GDP at market prices and GDP at factory cost is-

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Direct Taxes
  2. Transfer Payments
  3. Indirect Taxes
  4. Subsidies

Correct answer and explanation

Correct answer: Indirect Taxes

Explanation: GDP at market prices is calculated by adding Net Indirect Taxes (NIT) to GDP at factor cost (or factory cost). Indirect taxes such as GST, excise duty, and customs duty increase the market price of goods, while subsidies reduce it. Hence, the difference between GDP at market prices and GDP at factor cost is mainly due to indirect taxes (minus subsidies). This adjustment helps measure the value of goods and services at the price actually paid by consumers.