The correct option is 2 only.
Explanation
In National Income Accounting, the valuation of goods and services changes as they move from the production stage to the market. The transition involves the addition of specific taxes and the subtraction of subsidies. The Central Statistics Office (CSO) uses the concept of Basic Prices as the headline measure for Gross Value Added (GVA), distinguishing between Production Taxes (independent of volume, e.g., land revenue) and Product Taxes (dependent on volume, e.g., GST).
Statement-wise Analysis:
- Statement 1 is Incorrect. Factor Cost represents the total payment made to the factors of production (land, labor, capital, and entrepreneurship). It is the actual cost incurred by the producer. It does not include Net Production Taxes. Net Production Taxes are added to Factor Cost to arrive at Basic Prices.
Formula: GVA at Basic Prices = GVA at Factor Cost + Net Production Taxes. - Statement 2 is Correct. Basic Prices lie between Factor Cost and Market Prices. They include Net Production Taxes (Production Taxes minus Production Subsidies) but exclude Net Product Taxes. Net Product Taxes are only added when calculating Market Prices.
- Statement 3 is Incorrect. Market Prices represent the price paid by the consumer. They are obtained by adding Net Product Taxes (Product Taxes minus Product Subsidies) to Basic Prices, not by subtracting them.
Formula: GVA at Market Prices = GVA at Basic Prices + Net Product Taxes.
Key Takeaway:
The hierarchy of valuation is: Factor Cost → (add Net Production Taxes) → Basic Prices → (add Net Product Taxes) → Market Prices.