Explain the difference between personal and functional distribution.
Define functional distribution and distinguish it from personal distribution.
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Functional distribution of income refers to the distribution of national income among different factors of production, such as wages, rent, interest, and profits. It highlights how the total income generated in an economy is divided among the owners of labor, land, capital, and entrepreneurship. This distribution is based on the contributions of each factor to the production process.
On the other hand, personal distribution of income refers to the distribution of income among individuals or households. It focuses on how the income received from factors of production is distributed among people in a society. Personal distribution considers factors such as taxes, transfers, and other redistributive mechanisms that affect the distribution of income among individuals.
Functional distribution of income is concerned with the sources of income, emphasizing the share of income received by each factor of production. For example, it looks at how much of the national income goes to labor in the form of wages, to capital in the form of profits, to landowners in the form of rent, and to lenders in the form of interest.
On the other hand, personal distribution of income focuses on the recipients of income, considering how income is distributed among individuals or households. It takes into account factors such as the distribution of wages and salaries, government transfers, social benefits, and income from investments.
In summary, functional distribution of income deals with the distribution of income among factors of production, while personal distribution deals with the distribution of income among individuals or households. Functional distribution emphasizes the sources of income, while personal distribution focuses on the recipients of income.