NDP at factor cost is equal to NDP at markets in a two-sector economy
True or False with Reasons:
NDP at factor cost is equal to NDP at markets in a two-sector economy.
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Ture,
It happens because the concept of indirect taxes and subsidies do not arise in a two sector economy due to absesnce of government.
Explanation:-
Two sector of economy consists of only
- Households
- Producers
It does not consider governemnt and rest of the world.
The government levies indirect taxes and provide subsidies.
In this case, factor cost is always equal to the market price
Market price = Factor cost + Indirect taxes – subsidies
In the absence of government indirect taxes and subsidies are zero
Thus,
Maket price = Factor cost
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