Tamilnadu Samacheer Kalvi 11th Economics Notes Chapter 6 Distribution Analysis Notes
→ Distribution Analysis: “Distribution accounts for the sharing of wealth produced by a community among the agents or owners of the factors which have been active in its production” – Chapman
→ Meaning of Distribution: Distribution means division of income among the four factors of production in terms of rent to landlords, wage to labourer, interest to capital and profit to entrepreneurs.
→ Functional Distribution: Functional Distribution means the distribution of income among the four factors of production namely land, labour, capital and organization for their services in production process.
→ Assumptions: “Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil”. – David Ricardo
→ Quasi-Rent: “Quasi-Rent is the income derived from machines and other appliances made by man”, – Alfred Marshall,
→ The Modern Theory of Rent / Demand & Supply Theory of Rent: “The essence of the conception of rent is the conception of surplus earned by a particular part of a factor of production over and above the minimum earnings that is necessary to induce it to do work” – Joan Robinson
→ Meaning: “A sum of money paid under contract by an employer to a worker for the services rendered”. -Benham
→ Wage fund Theory of Wages: According to Mill “every employer will keep a given amount of capital for payment to the workers”. It is a known as “Wage Fund
→ Meaning: “Interest is the price paid for the use of capital in any market” – Alfred Marshall.
→ Keynes’ Liquidity Preference Theory of Interest or the Monetary Theory of Interest: Keynes propounded the Liquidity Preference Theory of Interest in his famous book, “The General Theory of Employment, Interest and Money” in 1936.
→ Meaning of Liquidity Preference: Liquidity preference means the preference of the people to hold wealth in the form of liquid cash rather than in other non-liquid assets like bonds, securities, bills of exchange, land, building, gold etc.
→ Determination of Rate of Interest: According to Keynes, the rate of interest is determined by the demand for money and the supply of money.
→ Concepts of profit: Gross Profit is the surplus which accrues to a firm when it subtracts its Total Expenditure from its Total Revenue.
→ Risk Bearing Theory of Profit: Risk bearing theory of profit was propounded by the American economist F.B.Hawley in 1907.
→ Uncertainty Bearing Theory of Profit: Uncertainty theory was propounded by the American economist Frank H.Knight.
→ Distribution: Distribution of wealth among agents or the owners of the factors of production.
→ Rent: is reward for the use of land.
→ Wages: are the reward for labour.
→ Interest: is the price paid for the use of capital.
→ Profit: is the reward for organization or entrepreneurship.
→ Quasi-Rent: is the surplus earned by man-made appliances and instruments
of production in the short-period.
→ Transfer earnings: Transfer earnings refer to minimum payment payable to a factor to retain it in its present use. „
→ Money wage: Money wage is the remuneration received by a labourer in terms of money.
→ Real wage: Real wage is the purchasing power of the money wages in terms of goods and services.
→ Loanable fund: Loanable fund is that part of capital meant for loan.
→ Innovation: Invention put into commercial practice.