Money flow: The flow of money from buyer.īoth the real and money flow takes place continuously in every economy. Real Flow: The flow of goods and services from seller. There are thus 3 economic activities namely:Īny sale of goods and services includes 2 types of flow: Examples are machines, equipments, materials, etc. These are food items, clothing, furniture, etc.Īcquiring goods and services for the use in other production processes is called Capital Formation or Investment. The use of goods and services for satisfaction of want is called consumption. In National Income Accounting, the remuneration accruing to the entrepreneur owner is termed as profit.īasic function of Factor of Production is to produce goods and services for which it incurs cost on:Ī) Purchasing goods and services from other production unitī) Hiring the services of four factor of production.Ģ) factor cost- factor income generated by the production unit. It refers to the initiative taken by a person or groups of persons (known as entrepreneur) in starting and organizing a business and takes the credit for all the good and bad consequences.
In National Income Accounting, the remuneration accruing to the capital is termed as interest. Capital:Īll man-made assets used for producing goods or services like structures of land, machines, equipments, stock of materials, etc. In National Income Accounting, the remuneration accruing to the land owner is termed as rent.
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It includes all that is given free to us by nature. The alternative term is natural resources. In National Income Accounting, it is termed as Compensation of employees. The remuneration paid to the workers is known as wages and salaries. It includes all the physical and mental efforts of human beings used for producing goods and services. National Income includes only factor income. E.g.: gifts, charities, donations, taxes, fines, etc. These are also termed as transfer incomes as merely transfer of money is involved without providing any goods or services. These are the incomes in which there is not any kind of factor service involved in getting the income. There are four types of factor income in the form of wages, rent, interest and profits. Owners of the above factors of production sell services of their factors to the production units> the production units pay the price for the factor services > this price is the factor cost to the production unit and factor income to the owner of factor of production.įactor income is the income accruing to the owner of a factor of production in return for the services rendered to the production unit. It is the production unit which generates the factor of income with the help of the above four. Have a Happy Learning! Types of Income:įactor means factor of production which are of 4 types: However, you are highly recommended to refer to the Economics books by NIOS since they are very important for forming your basic concepts and lot of questions are asked in the CSAT Prelims from these chapters. I have tried to include all the important points mentioned in the chapter and have made efforts to summarize them as much as I could. This article will be useful for all those IAS aspiring candidates who want to brush up their concepts dealt in this chapter.
This is the notes from NIOS Economics : Income Flows.
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