Economic Goal

Distribution Standards: Equity means income or wealth is distributed according to a standard of fairness. But what is the appropriate standard? It could be equality. Or it could be the productive value of resources. Or it could be need.

The three most noted distribution standards are:

• Equality Standard: Income is distributed equally to each person in society. With this standard, each member of society receives exactly the same income, the average level of income.


• Contributive Standard: Income is distributed based on the value of the goods and services that a person is responsible for producing, that is, their contribution to production. The contributive standard is the primary distribution standard used in market-oriented economies. The key to this standard is the equality between wage (or resource price) and the marginal revenue product of the resource.


• Needs Standard: Income is distributed based on the quantity of goods and services that a person needs to attain a given standard of living, that is, their needs. The needs standard is central feature of socialism and communism economic systems. The key to this standard is determine the amount of income needed to provide a particular level of consumption.

The Politics of Equity: The microeconomic goal of equity is widely acknowledged as a beneficial pursuit, however, there is a great deal of controversy over what constitutes an equitable distribution of resources, income, and wealth.

Consider the two basic political philosophies--liberals and conservatives.

• Liberals: Those who comprise the working class and occupy the lower end of the income spectrum generally favor the equality or needs distribution standards. Both tend to redistribute income from the upper end of the income spectrum to the lower end. Liberal politicians count these folks among their core constituency.


• Conservatives: Those who own businesses and occupy the upper end of the income spectrum generally favor the contributive distribution standards. This keeps income in the upper end of the income spectrum. Conservative politicians count these folks among their core constituency.

Ownership