Distribution (economics)

Distribution (economics)

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Distribution in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 refers to the way total output
Output (economics)
Output in economics is the "quantity of goods or services produced in a given time period, by a firm, industry, or country," whether consumed or used for further production.The concept of national output is absolutely essential in the field of macroeconomics...

, income, or wealth is distributed among individuals or among the factors of production
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...

 (such as labour, land
Land (economics)
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...

, and capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...

).. In general theory and the national income and product accounts
National Income and Product Accounts
The National Income and Product Accounts are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce...

, 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 National Income. 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
Income distribution
In economics, income distribution is how a nation’s total economy is distributed amongst its population.Income distribution has always been a central concern of economic theory and economic policy...

 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
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...

 theory and the theory of economic discrimination (Becker, 1993, 1971).

In welfare economics
Welfare economics
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it...

, 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
Social welfare function
In economics, a social welfare function is a real-valued function that ranks conceivable social states from lowest to highest. Inputs of the function include any variables considered to affect the economic welfare of a society...

, rules for selection from feasible distributions of income and output are a way of representing normative economics
Normative economics
Normative economics is that part of economics that expresses value judgments about economic fairness or what the economy ought to be like or what goals of public policy ought to be....

 at a high level of generality.

Neoclassical distribution theory


In neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...

, the supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

 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
Production, costs, and pricing
The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...

 relationship of that factor in the output market. Analysis applies to not only capital and land but the distribution of income in labor markets.

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
Growth accounting
Growth accounting is a procedure used in economics to measure the contribution of different factors to economic growth and to indirectly compute the rate of technological progress, measured as a residual, in an economy...

 and changes in the size of the capital stock and labor force. More recent developments of the distinction between human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...

 and physical capital
Physical capital
In economics, physical capital or just 'capital' refers to any already-manufactured asset that is applied in production, such as machinery, buildings, or vehicles. In economic theory, physical capital is one of the three primary factors of production, also known as inputs in the production function...

 and between social capital
Social capital
Social capital is a sociological concept, which refers to connections within and between social networks. The concept of social capital highlights the value of social relations and the role of cooperation and confidence to get collective or economic results. The term social capital is frequently...

 and personal capital have deepened analysis of distribution.

See also

  • Income distribution
    Income distribution
    In economics, income distribution is how a nation’s total economy is distributed amongst its population.Income distribution has always been a central concern of economic theory and economic policy...

     (quick overview: theory & policy, U.S.)
Median household income
Median household income
The median household income is commonly used to generate data about geographic areas and divides households into two equal segments with the first half of households earning less than the median household income and the other half earning more...

 (simplest measure of relative and absolute in income distribution)
Income quintiles (from the top 20% on down for the U.S.)
Household income in the United States
Household income in the United States
Household income is a measure commonly used by the United States government and private institutions, that counts the income of all residents over the age of 18 in each household, including not only all wages and salaries, but such items as unemployment insurance, disability payments, child support...

Personal income in the United States
Personal income in the United States
Personal income is an individual’s total earnings from wages, investment interest, and other sources. In the United States the most widely cited personal income statistics are the Bureau of Economic Analysis’s personal income and the Census Bureau’s per capita money income...

  • Economic inequality
    Economic inequality
    Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. The issue of economic inequality is related to the ideas of...

     (worldwide overview; causes, effects, normative perspectives)
  • Income inequality metrics
    Income inequality metrics
    The concept of inequality is distinct from that of poverty and fairness. Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific...

Gini coefficient
Gini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....

Lorenz curve
Lorenz curve
In economics, the Lorenz curve is a graphical representation of the cumulative distribution function of the empirical probability distribution of wealth; it is a graph showing the proportion of the distribution assumed by the bottom y% of the values...

  • Generational accounting
    Generational accounting
    Generational accounting is a relatively new method of national accounting for measuring redistribution of lifetime tax burdens across generations from social insurance, including social security and social health insurance...


Distribution of what?

  • Goods (economics)
    Good (economics and accounting)
    In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....

  • Income
    Income
    Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

  • Distribution of wealth
    Distribution of wealth
    The distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society, rather than the current income of members of that society.-Definition of...

  • Wealth
    Wealth
    Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

  • Wealth (economics)

Classical distribution theory

  • Classical economics: value theory

Marxian distribution theory

  • Marxian economics: Marx's economic theories
  • Value product
    Value product
    The value product is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies...


Neoclassical distribution theory

  • Neoclassical microeconomic model of labor market demand and supply
  • Production function
    Production function
    In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs...

  • Production, costs, and pricing
    Production, costs, and pricing
    The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...

  • Production theory basics
    Production theory basics
    Production refers to the economic process of converting of inputs into outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing, shipping, and packaging. Some...


Normative economics
Normative economics
Normative economics is that part of economics that expresses value judgments about economic fairness or what the economy ought to be like or what goals of public policy ought to be....

 of distribution

  • Welfare economics
    Welfare economics
    Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it...

Distributive justice
Distributive justice
Distributive justice concerns what some consider to be socially just allocation of goods in a society. A society in which incidental inequalities in outcome do not arise would be considered a society guided by the principles of distributive justice...

Justice (economics)
Justice (economics)
Justice in economics is a subcategory of welfare economics with models frequently representing the ethical-social requirements of a given theory. That theory may or may not elicit acceptance...

Social choice theory
Social choice theory
Social choice theory is a theoretical framework for measuring individual interests, values, or welfares as an aggregate towards collective decision. A non-theoretical example of a collective decision is passing a set of laws under a constitution. Social choice theory dates from Condorcet's...

Social welfare function
Social welfare function
In economics, a social welfare function is a real-valued function that ranks conceivable social states from lowest to highest. Inputs of the function include any variables considered to affect the economic welfare of a society...


External links

  • Frank Levy (1993)."Distribution of Income, The Concise Encyclopedia of Economics.
  • The Neoclassical Theory of Distribution from The New School
    The New School
    The New School is a university in New York City, located mostly in Greenwich Village. From its founding in 1919 by progressive New York academics, and for most of its history, the university was known as the New School for Social Research. Between 1997 and 2005 it was known as New School University...

  • U.S. National income by type of income, 1959-2005 (+ button to enlarge) from 2006 Economic Report of the President
    Economic Report of the President
    The Economic Report of the President is a document published by the President of the United States' Council of Economic Advisers . Released in February of each year, the report reviews what economic activity was of impact in the previous year, outlines the economic goals for the coming year , and...

    via Federal Reserve Bank of St. Louis.