Theory of Distribution in Economics
                     
INTRODUCTION
Distribution refers to the way total 
output, income, or wealth is 
distributed among individuals or 
among the factors of production such 
as labour, land, and capital.
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THEORY OF 
DISTRIBUTION 
The theory of distribution is that 
incomes are earned in the production 
of goods and services and that the 
value of the productive factor reflects 
its contribution to the total product. 
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OUTPUT
Distribution refers to the way total 
output, income, or wealth is 
distributed among individuals or 
among the factors of production such 
as labour, land, and capital. 
In general theory and the national 
income and product accounts, each 
unit of output corresponds to a unit 
of income.
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FACTORS
It is the systematic attempt to 
account for the sharing of the 
national income among the owners 
of the factors of production i.e., land, 
labour, and capital. 
Economists have studied how the 
costs of these factors i.e., rent, 
wages, and profits and the size of 
their return are fixed.
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ADVANTAGES OF 
DISTRIBUTION THEORY
• It treats wages, interest, and land 
rents in the same way.
• Is its integration with the theory of 
production.
• It lends itself to a relatively simple 
mathematical statement.
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PERSONAL DISTRIBUTION
Personal distribution is primarily a 
matter of statistics and the conclusions 
that can be drawn from them. The 
inequality seems to be greatest in poor 
countries and diminishes somewhat in 
the course of economic development. 
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FUNCTIONAL 
DISTRIBUTION
The theory of functional distribution, 
which attempts to explain the prices of 
land, labour, and capital, is a standard 
subject in economics. It sees the 
demand for land, labour, and capital as 
derived demand, stemming from the 
demand for final goods.
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INFLUENCES ON 
DISTRIBUTION
Price
The traditional inflationary sequence 
was that as prices rose, profits would 
increase, with wages lagging behind; 
this would tend to diminish the share of 
labour in the national income.
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INFLUENCES ON 
DISTRIBUTION CONT.
Technology
Another dynamic influence is 
technological progress. The concept of 
the production function assumes a 
constant technology.
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MARGINAL PRODUCTIVITY 
ALIAS THEORY OF 
DISTRIBUTION
The theory explains how the prices of 
the various factors of production would 
be determined under conditions of 
perfect competition and full 
employment.
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