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PERSONAL INCOME AND NATIONAL INCOME: Personal income (PI) is the total income received by the members of the domestic household sector, which may or may not be earned from productive activities during a given period of time. National income (NI) is the total income earned by the citizens of the national economy resulting from their ownership of resources used in the production, which may or may not be received by members of the household sector. Personal income can be derived from national income by subtracting income earned but not received (IEBNR) and adding income received but not earned (IRBNE).
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                           CONTRIBUTIVE STANDARD: An income distribution standard in which income is divided among members of society based on the value of each person's contribution to production. This is one of three basic income distribution standards that answers the For Whom? question of allocation. The other two are the equality standard and the needs standard. The contributive standard allocates income based on the value of the goods and services a person contributes to production. This standard answers the For Whom? question of allocation primarily through the use of prices and markets. The resources used to produce goods that are more highly valued by society and that better satisfy wants and needs, have higher prices and thus generate more income to their owners.THE Standard for CapitalismThis contributive standard is the primary method of distributing income in market-oriented capitalistic economies like the United States. The markets found in market-oriented capitalism indicate the relative value of resources and production through market prices. They allocate resources and distribute income according to these relative prices. Markets inherently do a better job of distributing income according to the contributive standard. Governments, in contrast, tend to make use of the needs and equality standards.An actor, for example, who can attract millions of adoring, ticket-paying fans to view an action-packed, blockbuster movie is responsible for producing a good that is more highly valued by society than a philosophy professor who spends all semester teaching a dozen reluctant, tuition-paying students the finer details of existentialism. The movie star, as such, receives more income than the college instructor. The key is that competitive markets equate the compensation paid to resource owners with the value of the contribution the resource makes to production. In more technical terms, this is stated as an equality between the resource price and the marginal revenue product. For labor, this is an equality between the wage and the marginal revenue product of labor. Incentives for EfficiencyA primary benefit of the contributive standard is that it provides incentives for resource owners to efficiently allocate their resources to the highest valued productive uses. If, for example, Brace Brickhead can earn more income as the star of an action-packed movie than as a existentialist philosophy professor, then he would be inclined to efficiently allocate his labor resources to the production of highly-valued entertainment rather than less-valued education. Society gets more of what it wants.But Barbaric?However, a noted problem with the contributive standard is that those who contribute less (or nothing at all) to production, receive less income (or nothing at all). Taken to the extreme, the contributed standard can be downright barbaric. Newborn babies, small children, elderly, invalids, disabled, and other nonproducers would, under the contributive standard, receive no income. With no income, they purchase no goods, including food, and would be inclined to drop dead in the streets, if they could make it that far.The conundrum of the contributive standard is that no one is able to escape their unproductive childhoods and become productive adults. Unproductive children die from lack of food. While the contributive standard is a excellent starting point for the distribution of income, it is invariably seasoned with the needs and equality standards.
Recommended Citation:CONTRIBUTIVE STANDARD, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 18, 2025].
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BLUE PLACIDOLA
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Today, you are likely to spend a great deal of time searching the newspaper want ads looking to buy either a wall poster commemorating the first day of winter or blue cotton balls. Be on the lookout for rusty deck screws.
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This isn't me! What am I?
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
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"A winner is someone who recognizes his God-given talents, works his tail off to develop them into skills, and uses those skills to accomplish his goals. " -- Larry Bird, basketball player
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D-J
Dow Jones
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