Factor income can be defined as the income that is produced from the factors of the production. For example the factors of the production include land, labor and the amount of capital that is spent by a business entity on production. Factor income that is collected through the land is called rent where as the income that is collected in terms of labor is known as wages. In addition to that factor income that is generated on the use or the investment of the capital is known as profit. These all are the examples of the factor income. The factor income of all the people that resides in a country and is the residents of a certain country is known as the national income. On the other hand the factor income of an individual along with the current transfers is known as private income.
The most important use of the factor income is in the field of microeconomics. This microeconomics analysis of the factor income is used by the government to find out the difference between the gross domestic product and the gross national product. In most of the countries the difference between the GDP and GNP is not much as in most of the countries both the national income and private income are the offset of each other. However in small and developing nations a measurable and prominent difference is noted and calculated in GDP and GNP as there is a great difference between the factor incomes of these countries.
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