16 Questions
What is the reward for land according to the theory of distribution?
Rent
Which factor is rewarded with profit according to the theory of distribution?
Entrepreneurship
What is the major factor of production that is rewarded with wages?
Labor
In the theory of distribution, which factor receives interest as a reward?
Capital
What contributes to the derived demand of factors of production?
Joint demand in the production process
How does the determination of factor prices differ from product pricing?
Factors have a derived demand while products have independent demand
What does factor pricing refer to in economics?
The price paid for the services rendered by the factors of production
How is market demand for a factor of production determined?
By summing up the demand from all the firms
What does functional distribution of income focus on?
Distributing income among the four factors of production
What is the emphasis of macro theory of distribution?
Dealing with aggregates of a nation
How is the supply of factors of production determined in a market?
By summing up the supply from all factor owners in the market
What is the main principle while determining the demand for any factor of production?
Profit maximization
What does personal distribution focus on in terms of income distribution?
Individual income generation
What does the micro theory of distribution deal with?
Distribution of national income among factor owners
What does modem economists believe in terms of pricing factors of production?
Factors can also be priced based on demand and supply forces
How are goods produced according to theories of factor pricing distributed among factors of production?
Distributed among the four factors according to their services rendered
Study Notes
Theory of Distribution
- The reward for land is rent.
- Profit is the reward for the entrepreneur or factor of production.
Factors of Production and Their Rewards
- Labor is the major factor of production that is rewarded with wages.
- Capital is the factor of production that receives interest as a reward.
Demand for Factors of Production
- The derived demand for factors of production is contributed to by the demand for the product they help to produce.
- The market demand for a factor of production is determined by the marginal revenue product of that factor.
Factor Pricing
- Factor pricing refers to the process of determining the prices of factors of production, such as labor and capital.
- The determination of factor prices differs from product pricing in that it is based on the marginal productivity of each factor.
Determining Demand and Supply
- The supply of factors of production is determined in a market by the marginal cost of production.
- The main principle in determining the demand for any factor of production is the marginal revenue product of that factor.
Income Distribution
- Functional distribution of income focuses on the distribution of income among different factors of production, such as labor and capital.
- Personal distribution of income focuses on the distribution of income among individuals or households.
- Macro theory of distribution emphasizes the overall distribution of income in the economy.
Micro Theory of Distribution
- The micro theory of distribution deals with the distribution of income among different factors of production in a particular industry or market.
Modern Economists' View
- Modern economists believe that factors of production should be priced based on their marginal productivity.
Distribution of Goods
- According to theories of factor pricing, goods produced are distributed among factors of production based on their marginal productivity.
Explore the concept of factor pricing and distribution in economics. Learn about rent, wages, interest, and profit as factors of production and their determination in the theory of distribution.
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