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Market Distortions

The following...

Question

The following statements true or false? Give reasons.
Market price is always more than factor cost.

A

True

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B

False

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Solution

The correct option is B False
Market price is always more than factor cost- it is a false statement. Market price can be less than factor cost when subsidies will be more than the indirect tax.
Formula: Market price - indirect tax + subsidies = Factor cost

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