In ordinary language the term ‘distribution‘ means to distribute or allocate. But in Economics distribution refers to that economic activity which is concerned with distribution of output among various factors of production.
In the words of Prof. Samuelson “Distribution is concerned with the problem of how the different factors of production land, labour, capital and entrepreneurship are priced in the market.”
According to Chapman, “The economics of distribution account for the sharing of the wealth produced by a community among the agents or the owners of agents which have been active in its production.”
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There are mainly three approaches to the theory of distribution. These are:
(a) Macro Distribution
(b) Functional Distribution
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(c) Personal Distribution
(a) Macro Distribution:
Macro-distribution refers to distribution of the total national income among different social groups, like the landlords, capitalists and the workers. This is the problem of- the aggregate rewards of the important factor groups out of total national income.
All labourers constitute one group of factors, just as the owners of land constitute another distinct group of factors. The owners of capital, called capitalists, form another separate group of factors. The total income produced in a society during a year is shared by this separate group of factors. This is the problem of macro-distribution.
(b) Functional Distribution:
This approach of distribution study how the different factors are paid for their services in the field of production. Here was study how the rates at which wages paid are determined, how the reward of land, that is rent, is determined and the like. This gives us the problem of factor pricing i.e., how the different factors are rewarded on per-unit basis. This, in short is the problem of functional distribution.
(c) Personal Distribution:
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Personal distribution refers to the distribution of national income among the individuals of the community. National income of a country is not always equitably distributed.
This leads to inequalities in the distribution of income and wealth. Under personal distribution, we study the extent of inequalities and causes of inequalities etc.
Here in this chapter, we are concerned with only to the functional distribution.