What is Factor Cost and how it is different from Market Price?
Factor cost is the total amount which the manufacturer had to invest in production of a good or commodity. It doesn’t include any taxes imposed on the final product. But it includes the subsidies provided to the manufacturer during the production stage
Market Price: It is the price at which a product is sold in the market. It includes the cost of production in the form of wages, rent, interest, input prices, profit etc. It also includes the taxes imposed by the government. It excludes Government subsidy.
So, the relationship between Factor price and Market price is
Market Price = Factor Price + Indirect Taxes – Subsidie
For Ex, GDP at Market Price and GDP at Factor Cost:
GDP at market price = GDP at factor cost + Indirect Taxes – Subsidies