1. Theories of Distribution

2. Distribution
Distribution refer to that branch of economics which analyses how the national income of a country is divided among the various factors of production
Functional Distribution
Personal Distribution

3. Marginal Productivity Theory of Distribution
Theory of factor pricing
“Under static conditions, every factor including the entrepreneur, would get remuneration equal to its marginal product” – Prof J B Clark
Derived demand
Entrepreneur will employ a factor till its marginal productivity is equal to its price
Marginal Physical Product (MPP)
Marginal Value Product (MVP)
Marginal Revenue Product (MRP)
Average Revenue Product

4. Relationship between ARP and MRP

6. Critical Evaluation of Marginal Productivity Theory
Perfect Competition
Questionable assumptions (a)homogeneous units (b)full employment (c) perfect mobility (d) divisible factors (e) profit maximization objective
Short period ignored
It’s a static theory
Theory of exploitation
One-sided
Immeasurability
Normative aspect ignored
Ignore personal distribution
Reward determines productivity

7. Rent

8. Different Concepts of Rent
Contractual Rent
Differential Rent
Pure Rent

9. Ricardian Theory of Rent
That portion of the produce of the earth which is paid to landlord for the use of original and indestructible power of the soil.

10. Assumptions No alternative use of land
Rent depend on the main qualities of land i.e. fertility and location
All cultivable lands are owned by landlords
Different in fertility
Diminishing returns
Original and indestructible powers
Perfect competition
Order of cultivation
Marginal land
Tendencies

12. Wages

13. Wages Payment made for the service of labour
Mental labour and physical labour
A wage is a price, it is a price paid by the employer to the workers on account of labour performed
Nominal Wage and Real Wage
Time Wage and Piece Wage

14. Factors Determining Real Wages
Level of money wages
Purchasing power of money
Opportunity of supplementary earnings
Additional facilities
Extra work without extra payment
Nature of employment
Strain of work
Professional expenses
Cost of professional training
Future prospects
Social status

15. Interest

16. Interest Interest is a premium paid on capital that is borrowed
Interest is price paid for a loan – Prof Benham
In economic interest does not refer to the total amount paid by a borrower, but to that part of his payment which can be attributed to the use of capital only, ad for nothing else.

17. Gross Interest and Net Interest
Pure or net interest
Assurance against risk
Wages for management
Reward for inconvenience

18. Profit

19. Profit
The share of income that the entrepreneurs receive in the process of distribution is known as profit
Profit differ from other factor returns
Profit may be negative
Profit fluctuates more than other factors
Profit is a residual income

20. Gross Profit and Net Profit
Reward for the factors of production supplied by the entrepreneurs
Charges of maintenance (a) depreciation (b) Insurance charges
Extra personal gains (a) monopoly gains (b) windfall gains
Reward for (a) risk taking (b) bargaining skill

21. Theories of Profit Risk Theory of Profit
Uncertainty theory of profit (a) Insurable risk (b) non-insurable risks – competition risk, technical risk, risk of government policy, business cycle risk
Innovative Theory of Profit (a) those innovation which reduce the cost of production (b) those innovation which change the demand of utility function

22. Thanks