Business, Legal & Accounting Glossary
the financial gain (earned or unearned) accruing over a given period of time
Income is the revenue earned by any individual. The flow of money to any factor of production is termed as income. Income is generated by the sale of commodities or services. Returns to labour, enterprise, capital, and land are termed as wage, profit, interest, and rent respectively. Thus, the sum of wage, profit, interest and rent is income. In simple terms, income is an opportunity earned from various sources and income provides the ability to consume and avail other services.
Income is a significant aspect of economics. Income is sometimes used as a macro concept and again income is treated as a constraint. Usage of income in economics is varied. From a microeconomic point of view, income is treated as the flow of money measured per unit of time. When we talk about consumer theory in economics, income is treated as a budget constraint. Consumer theory is the study of consumer behaviour. Here, income is spent on two different goods at different prices. Thus, a basic equation that can be formed is as follows:
I = Px . X + Py . Y
Where I = income spent on two goods x and y in quantities X and Y at prices Px and Py.
Income as a macroeconomic subject has a wide spectrum. Income in macroeconomics is referred to as national income.
The money value of all goods and services produced in an economy in a year is termed as national income. The annual income of any individual is the sum of all income obtained from various sources. The same concept is used in summing up the income of any nation. In order to calculate the income of any nation, incomes of all sectors of the economy are to be considered. National income can be calculated in three ways:
Production method involves total production of all sectors of an economy in a year. Income method considers income flowing from all factors of income. Expenditure method takes into account the total expenditure incurred for various goods and services.
Since all these three methods yield national income so any one of these methods can be used to calculate the national income of any nation.
Thus, Production method = Expenditure method = Income method = National income
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This glossary post was last updated: 21st April, 2020 | 33 Views.