Answer to Question #45297 in Finance for Kalpesh Pindoria

Question

What are the special features of factor pricing? How factor pricing differs from commodity pricing?

Answer 1

The theory of distribution or the theory of factor pricing deals with the determination of the share prices of four -factors of production, viz., land, labour, capital and organization. The share of land, in Economics, is named as Rent, the share of labour as Wages, the share of capital as Interest and the share of organization as Profit The four factors of production in co-operation with one another produce annually a net aggregate of commodities, material and non-material. This we name as national income. The national income is to be shared among the four factors of production which have contributed to this production. In the theory of distribution, we are chiefly concerned with the principles according to which the price of each factor of production is determined and distributed.