Factor Income - Explained
What is Factor Income?
Written by Jason Gordon
Updated at March 26th, 2023
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What is Factor Income?
An income derived from any factor of production is called a factor income. There are four factors of production, they are; Land, capital, labor and enterprise. Any return received or income generated on these factors of production is the factor income. Different factors of production provide income through different means. Factor income are generated as follows; rent is generated on land, wages from labor, interest is generated on capital and profit from enterprise.
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How is Factor Income Used?
Through factor income, the government of a nation can distinguish gross domestic product from gross national product. This is important in determining the income generated domestically and income generated by citizens abroad. Factor of income is also important in macroeconomic analysis. Also, since different factors of production give different rate of income, their difference can also be measured. When carrying out a country-level analysis of income, factor income is considered. For instance, varying income derived from land, labor, capital and enterprise are factored in when estimating the total income generated by a country over a period of time. Also, proportional distribution of income across different factors is weighed.
Relate Topics
- Theory of the Firm
- Capital Formation
- Rent Seeking
- Structure Conduct Performance Model
- Integration
- Co-Insurance Effect
- Conglomerates
- Cost vs Profit Center
- Accelerator Theory
- Market Structure
- Fixed Cost vs Variable Cost
- Actual vs Implicit Costs
- Explicit Costs
- True Cost Economics
- Accounting Profit
- Economic Profit
- What are Factors of Production?
- Factor Income
- Production Function
- Fixed and Variable Inputs
- Short-Run and Long-Run Production
- Short Run
- Total Product
- Marginal Product
- Value of Marginal Product
- Law of Marginal Diminishing Product
- Production Function
- Production Possibilities Frontier
- Capital
- Labor Theory of Value
- How the Production Function Estimates Inputs
- Factor Payment
- Economic Rent
- Cost Function
- Incremental Cost
- Marginal Input Cost
- Fixed and Variable Costs
- Diminishing Marginal Productivity
- Costs Relate to Diminishing Marginal Productivity
- Law of Diminishing Marginal Returns
- Average Total Cost
- Average Variable Cost
- Marginal Cost
- Average Profit or Profit Margin
- Accounting Profit
- Economic Profit
- Normal Profit
- Short and Long-Run Production
- Cost Curves
- Long-Run Average Cost (LRAC)
- Production Technologies
- Economies of Scope
- Economies of Scale
- Diseconomies of Scale
- Minimum Efficient Scale
- Increasing, Constant, and Decreasing Returns to Scale
- Shape of the Average Long-Run and Short-Run Cost Curves
- Returns to Scale
- Diseconomies of Scale
- Long-Run Average Cost Curve Affect Industry Competitors
- Technology Shifts the Long-Run Average Cost Curve
- Law of Diminishing Marginal Returns