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PERFECT COMPETITION CHARACTERISTICS: The four key characteristics of perfect competition are: (1) large number of small firms, (2) identical products sold by all firms, (3) freedom of entry into and exit out of the industry, and (4) perfect knowledge of prices and technology. These four characteristics mean that a given perfectly competitive firm is unable to exert any control whatsoever over the market.
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                           PROPRIETORS' INCOME: The official factor payment item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis measuring the combined payments for all four factors of production used in owner-operated business firms. Specifically, proprietors' income is the excess of revenue over explicit production cost of owner-operated businesses and includes payments for labor, capital, land, and entrepreneurship. This is one of five official factor payments making up national income. The other four are compensation of employees, rental income of persons, net interest, and corporate profits. Proprietors' income is usually less than 10 percent of national income, typically in the 7 to 10 percent range. While proprietorships are the namesake and most important contributor to proprietors' income, this item also includes partnerships. Because proprietors or partners of owner-operated businesses generally supply several factors of production--labor, capital, land, and entrepreneurship--without explicit payment for each factor separately, the income received by the owners usually includes wage, interest, rent, and profit payments. However, because it is virtually impossible to identify what portion of the owners income is payment for each factor, they are lumped together as proprietors' income.To see why proprietors' income warrants a special category in the National Income and Product Accounts, consider the operation of typical proprietor, Phil Gardener, a zucchini grower. Phil supplies the labor, capital, land, and entrepreneurship used for zucchini production. He plants the zucchini seeds, pulls unwanted weeds, irrigates his crop, harvests the zucchinis when they are ripe, then sells his bounty to eager buyers. Along the way, Phil incurs explicit production cost for such inputs as seeds, water, paper sacks (for packaging), and gasoline (to drive to the market). When Phil's zucchini crop is sold, he deducts the explicit costs of his assorted inputs, and what remains is his income, his "proprietor's income." However, Phil does not compensate himself separately for the services of his labor, capital, land, or entrepreneurship. As such, Phil's income actually includes wage, interest, rent, and profit factor payments. How much of each factor payment is included in his proprietor's income, no one knows. The folks at the Bureau of Economic Analysis would like to include Phil's wages, interest, rent, and capital in the corresponding items in the National Income and Product Accounts separately--if they could. But they really cannot. They do not know how much of Phil's income is wages, interest, rent, and profit. So, they simply lump together his income with that of other proprietors and partners who operate like Phil into a separate category called proprietors' income. Because a portion of proprietors' income is payment for the use of capital goods, it receives a capital consumption adjustment before being included as national income. The capital consumption adjustment is part of gross domestic product, but not part of national income. As such, any depreciation of the capital used by proprietors is deducted before calculating the proprietors' income.
Recommended Citation:PROPRIETORS' INCOME, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: March 21, 2025].
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