Explain why subsidies are added to and indirect taxes deducted from domestic product at market price to arrive at domestic product at factor cost?
Subsidies by government are grants that decrease the factor price of a commodity, whereas, indirect taxes are paid by a firm and households that increase the final factor price of a commodity. Hence, to derive Gross Domestic Product at Factor Cost from Gross Domestic Product at Market Price, we deduct indirect taxes and add subsidies.