Correct Answer - Option 2 : Factor Cost
The correct answer is Factor Cost.
Explanation:
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Factor cost is basically the input costs(like raw material, interest on loans if taken, labourers' wages, etc) the producer or the manufacturer has to bear during the process of producing goods. Factor cost is also termed as ‘factory price’. So in a way, it can also be termed as the ‘price’ of the commodity from the producer’s side.
- Now when we add the taxes (indirect) to the factory cost we get ‘market cost’. So it means the cost at which the goods reach the market, i.e., showrooms(the tax paid by the producers to the union government in India). After adding the state government taxes (SGST) to it we get 'market price’ or factor price.
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Market Cost: The value of total produced goods and services i.e. national income of any economy is calculated on either of the two parameters - ‘factor cost’ or the ‘market cost’.
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Before 2015 officially India calculated the national income at factor cost(however the data regarding market cost was also released) but after 2015, CSO has switched over to calculating it at market price (i.e., market cost).
- The market price is calculated by adding the product taxes (both the state and central taxes) to the factor cost.
