Distribution

In economic theory, market is divided into two broad categories, viz. (i) product market and (ii) factor market. In product market, we study how price of the product is determined under different market forms. In factor market, we study how prices of factors are determined. Thus the theory of factor pricing is known as the theory of distribution.

The study of distribution of income in the society can be viewed from three different angles. First, we may study the way in which the total income of the economy is divided as shares among different classes of owners of factors of production like the landlords, capitalists and workers. In a society, workers as a whole constitute one class which is different from that of the capitalists. Similarly landlords form a separate class. Therefore out of the total national income, which group of factors gets how much, is the problem of macro distribution.

Second, we may study the way in which rewards of individual factor of production are determined for their services in the field of production. For example, here we study how rent of land is determined or how wage rate of labour is determined. This is known as the theory of functional distribution which implies the theory of factor-pricing.

Third, we may study the personal distribution of income. This approach is concerned with the distribution of income among individual or families. Here we are not concerned with how and from which source these incomes are received. We are only studying the distribution of national income among different families and individuals in the society. Personal distribution of income in a county throws light on the degree of inequality prevailing in a country.