Everything about Distribution Economics totally explained
Distribution in
economics refers to the way total output or income is distributed among individuals or among the
factors of production (
labor,
land, and
capital) (Samuelson and Nordhaus, 2001, p. 762). In general theory and the
national income and product accounts, each unit of output corresponds to a unit of income. One use of national accounts is for classifying
factor incomes
and measuring their respective shares, as in . But, where focus is on income of
persons or
households, adjustments to the national accounts or other data sources are frequently used. Here, interest is often on the fraction of income going to the top (or bottom)
x percent of households, the next
y percent, and so forth (say in
quintiles), and on the factors that might affect them (globalization, tax policy, technology, etc.).
Descriptive, theoretical, scientific, and welfare uses
Income distribution can describe a prospectively observable element of an economy. It has been used as an input for testing theories explaining the distribution of income, for example
human capital theory and the theory of economic discrimination (Becker, 1993, 1971).
In
welfare economics, a level of
feasible output
possibilities is commonly
distinguished from the distribution of income for those output possibilities. But in the formal theory of
social welfare,
rules for selection from feasible distributions of income and output are a way of representing
normative economics at a high level of generality.
Neoclassical distribution theory
In
neoclassical economics, the
supply and demand of each factor of production interact in factor markets to determine equilibrium output, income, and the income distribution.
Factor demand in turn incorporates the
marginal-productivity relationship of that factor in the output market. Analysis applies to not only capital and land but the distribution of income in labor markets (Hicks, 1963). In a
perfectly competitive economy,
market equilibrium results in
allocative efficiency as to the mix of output produced and
distributive efficiency in the least-cost mix of
factors of production. In
1908, the efficiency properties of perfect competition were shown by
Enrico Barone to be required as well for efficient resource use in
collectivist planning.
The
neoclassical growth model provides an account of how distribution of income between capital and labor are determined in competitive markets at the
macroeconomic level over time with
technological change and changes in the size of the capital stock and labor force. More recent developments of the distinction between
human capital and
physical capital and between
social capital and personal capital have deepened analysis of distribution.
Further Information
Get more info on 'Distribution Economics'.
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