Theories Of Distribution — Flashcards

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Functional distribution refers to how national income is divided among the factors of production based on their contribution. Rent goes to land, wages to labour, interest to capital, and profit to the…

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Personal distribution refers to how national income is distributed among individuals in society. It focuses on income inequality—why some people earn more than others. For instance, a doctor may earn …

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Micro-distribution explains how the prices of factors (like wages or rent) are determined in the market. Macro-distribution shows the share of each factor’s income in the total national income. For ex…

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Derived demand means the demand for a factor of production comes from the demand for the final product it helps to produce. For example, if there's high demand for cars, there will be higher demand fo…

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This theory states that a factor of production is paid according to its marginal productivity—the additional output it generates. Developed by J.B. Clark, it says firms hire workers until the marginal…

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Marginal Physical Product (MPP) is the extra output produced by adding one more unit of a factor, keeping others constant. For example, if 5 workers make 50 shirts and 6 workers make 58 shirts, the MP…

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MRP = Marginal Physical Product (MPP) × Price of the product. For example, if a worker produces 10 extra bags (MPP=10) and each bag sells for ₹200, then MRP = 10 × 200 = ₹2000.

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1. Perfect competition in both product and factor markets. 2. Full employment of factors. 3. Homogeneous factor units. 4. Perfect mobility of factors. 5. Substitutability between factors. 6. Divisibil…