Part – B

Answer the following questions in one or two sentences

Question 21.
What is meant by distribution?
Answer:
Distribution means division of income among the four factors of production as rent, wage, interest and profit.

Question 22.
Mention the types of distribution?
Answer:
Personal Distribution: Personal Distribution is the distribution of national income among the individuals.
Functional Distribution: Functional Distribution means the distribution of income among the four factors of production namely land, labour, capital and organization for their services in production process.

Question 24.
Distinguish between real and money wages.
Answer:
Real wages :
Wages paid in terms of goods and services. It refers to the purchasing power of money wages.

Money wages :
Nominal wages are referred to as wages paid in terms of money.

Question 25.
What do you mean by interest?
Answer:

  1. Interest is the reward paid by the borrower to the lender for the use of capital.
  2. Interest is the price paid for the use of capital in any market.
  3. Generally speaking, interest is a payment made by a borrower to the lender for the money borrowed.

Question 26.
What is profit?
Answer:
Profit is the amount left with the entrepreneur after he has made payments for all the other factors of production.

Part – C
Answer the following questions in One Paragraph

Question 29.
List out the kinds of wages:
Answer:
Wages are divided into four types.

  1. Nominal Wages or Money Wages: Nominal wages are referred to the wages paid in terms of money.
  2. Real Wages: Real wages are the wages paid in terms of goods and services. Hence, real wages are the purchasing power of money wages.
  3. Piece Wages: Wages that are paid on the basis of quantum of work done.
  4. Time Wages: Wages that are paid on the basis of the amount of time that the worker works.

Part – D
Answer the following questions in about a page

Question 35.
Explain the Marginal Productivity Theory of Distribution.
Answer:
Marginal productivity theory of distribution was developed by Clark, Wickseed and Walras. This theory explains how the prices of various factors of production are determined. This theory is also known as “General theory of distribution” or “National dividend theory of distribution”.
Assumptions:

  1. All the factors of production are homogenous and can be substituted for each other.
  2. There is perfect competition in both factor and product market.
  3. There is perfect mobility and full employment of factors of production.
  4. This theory is applicable only in the long-run.
  5. The entrepreneurs aim at profit maximization.
  6. There is no government intervention and no technological change.

Explanation of the theory :
Each factor is rewarded according to its marginal productivity.

Marginal product:
The marginal product of a factor of production means the addition made to the total product by employment of an additional unit of that factor.

Marginal physical product (MPP) :
The MPP of a factor is the increment in the total product obtained by the employment of an additional unit of that factor.

Value of marginal product (VMP):
VMP = MPP x price

Statement of the theory:

  1. The price of a factor of production depends upon its productivity.
  2. The price of a factor is determined by and will be equal to marginal revenue product of that factor.
  3. Under certain conditions, the price of a factor will be equal to both average and marginal products of that factor.
X- axis represents factor units and Y-axis represents the factor price and revenue product.
MRP – Marginal Revenue Product Curve
ARP – Average Revenue Product Curve
AFC – Average Factor cost Curve
MFC – Marginal Factor cost Curve
AFC – is horizontal under perfect competition and MFC coincides with it.
When there is perfect competition in the factor market, the firm is in equilibrium only when MFC = MRP
At the point Q by employing ON units of factors and paying OP price (NQ) where MFC = MRP
At Q, MRP = ARP
Price of the factor (NQ) = Marginal revenue
Product (NQ) = Average revenue product (NQ)
There is no exploitation of factors under perfect competition.
Beyond the point Q the price paid to the factor is more than marginal revenue product and average revenue product, so employer do not employ the factors.