What is Factor Income?

An income derived from any factor of production is called a factor income. There are four factors of production, they are; Land, capital, labor and enterprise. Any return received or income generated on these factors of production is the factor income. Different factors of production provide income through different means. Factor income are generated as follows; rent is generated on land, wages from labor, interest is generated on capital and profit from enterprise.

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How is Factor Income Used?

Through factor income, the government of a nation can distinguish gross domestic product from gross national product. This is important in determining the income generated domestically and income generated by citizens abroad. Factor of income is also important in macroeconomic analysis. Also, since different factors of production give different rate of income, their difference can also be measured. When carrying out a country-level analysis of income, factor income is considered. For instance, varying income derived from land, labor, capital and enterprise are factored in when estimating the total income generated by a country over a period of time. Also, proportional distribution of income across different factors is weighed.