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Concept
Distribution (economics)
Summary
In economics, distribution is 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 in for example the U.S. National Income and Product Accounts, each unit of output corresponds to a unit of income. One use of national accounts is for classifying factor incomes and measuring their respective shares, as in national Income. But, where focus is on income of persons or households, adjustments to the national accounts or other data sources are frequently used. Here, interest is often on the fraction of income going to the top (or bottom) x percent of households, the next x percent, and so forth (defined by equally spaced cut points, say quintiles), and on the factors that might affect them (globalization, tax policy, technology, etc.).
Income distribution can describe a prospectively observable element of an economy. It has been used as an input for testing theories explaining the distribution of income, for example human capital theory and the theory of economic discrimination (Becker, 1993, 1971).
In welfare economics, a level of feasible output possibilities is commonly distinguished from the distribution of income for those output possibilities. But in the formal theory of social welfare, rules for selection from feasible distributions of income and output are a way of representing normative economics at a high level of generality.
In neoclassical economics, the supply and demand of each factor of production interact in factor markets to determine equilibrium output, income, and the income distribution.
Factor demand in turn incorporates the marginal-productivity relationship of that factor in the output market. Analysis applies to not only capital and land but the distribution of income in labor markets.
The neoclassical growth model provides an account of how the distribution of income between capital and labor is determined in competitive markets at the macroeconomic level over time with technological change and changes in the size of the capital stock and labor force.
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