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In
microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis for discussion. Als ...
, income is the
consumption Consumption may refer to: *Resource consumption *Tuberculosis, an infectious disease, historically in biology: * Consumption (ecology), receipt of energy by consuming other organisms in social sciences: * Consumption (economics), the purchasing of ...
and
saving Saving is income In microeconomics, income is the Consumption (economics), consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms.Smith's financial dictionary. Smit ...
opportunity gained by an entity within a specified timeframe, which is generally expressed in
monetary Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 174x174px Money is any item or verif ...
terms.Smith's financial dictionary. Smith, Howard Irving. 1908. Income is defined as, "Revenue; the amount of money coming to a person or a corporation (usually interpreted as meaning annually) whether as payment for services or as interest or other profit from investment." For
household A household consists of one or several persons who live in the same dwelling In law, a dwelling (also residence, abode) is a self-contained unit of accommodation used by one or more households as a home A home, or domicile, is a s ...

household
s and individuals, income is a sum that includes any
wage A wage is the distribution from an employer of a ''security'' (expected return or profits derived solely from others) paid to an employee. Like interest is paid out to an investor on his investments, a wage is paid (from company earnings) to t ...

wage
,
salary A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract An employment contract or contract of employment is a kind of contract A contract is a legally binding agreement that def ...
,
profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
,
interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...

interest
payment,
rent Rent may refer to: Economics *Renting Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or owned by another. A is when the pays a flat rental amount and the pays ...
, or other form of earnings received in a given period of timeCase, K. & Fair, R. (2007). ''Principles of Economics''. Upper Saddle River, NJ: Pearson Education. p. 54. (also known as
gross income For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where work ...
). Net income is defined as the gross income minus
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
es and other deductions (e.g., mandatory
pension A pension (, from Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communication (from Latin ''communicare'', meaning "to share" or "to be ...

pension
contributions), and is usually the basis to calculate how much
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
is owed. In the field of
public economics Public economics (or economics of the public sector) is the study of government policy through the lens of economic efficiency In , economic efficiency is, roughly speaking, a situation in which nothing can be improved without something else being ...
, the concept may comprise the accumulation of both monetary and non-monetary consumption ability, with the former (monetary) being used as a proxy for total income. For a firm, gross income can be defined as sum of all
revenue In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to comp ...
minus the
cost of goods sold Cost of goods sold (COGS) is the carrying value In accounting, book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization ...
.
Net income In business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a busin ...
nets out expenses: net income equals revenue minus cost of goods sold,
expenses Expenditure is an outflow of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or ve ...
,
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

depreciation
, interest, and taxes. Barr, N. (2004). Problems and definition of measurement. In ''Economics of the welfare state''. New York: Oxford University Press. pp. 121–124


Economic definitions

In
economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interact ...

economics
, "
factor incomeFactor Income is the flow of income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms.Smith's financial dictionary. Smith, Howard Irving. 1908. Income is ...
" is the return accruing for a person, or a nation, derived from the "factors of production": rental income, wages generated by labor, the interest created by capital, and profits from entrepreneurial ventures. In
consumer theory The theory of consumer choice is the branch of microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that ar ...
'income' is another name for the "budget constraint," an amount Y to be spent on different goods x and y in quantities x and y at prices P_x and P_y. The basic equation for this is :Y=P_x \cdot x + P_y \cdot y This equation implies two things. First buying one more unit of good x implies buying \frac less units of good y. So, \frac is the ''relative'' price of a unit of x as to the number of units given up in y. Second, if the price of x falls for a fixed Y and fixed P_y, then its relative price falls. The usual hypothesis, the
law of demand In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis ...

law of demand
, is that the quantity demanded of x would increase at the lower price. The analysis can be generalized to more than two goods. The theoretical generalization to more than one period is a multi-period
wealth Wealth is the abundance of valuable financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), bank deposits, bond (finance), bonds, and participations in companies' sh ...
and income constraint. For example, the same person can gain more productive skills or acquire more productive income-earning assets to earn a higher income. In the multi-period case, something might also happen to the economy beyond the control of the individual to reduce (or increase) the flow of income. Changing measured income and its relation to consumption over time might be modeled accordingly, such as in the
permanent income hypothesis The permanent income hypothesis (PIH) is a model in the field of to explain the . It suggests consumption patterns are formed from future expectations and . The theory was developed by and published in his ''A Theory of Consumption Function'', ...
.


Full and Haig–Simons income

"Full income" refers to the accumulation of both the monetary and the non-monetary consumption-ability of any given entity, such as a person or a household. According to what the economist
Nicholas Barr Nicholas Barr FRSA Fellowship of the Royal Society for the Encouragement of Arts, Manufactures and Commerce (FRSA) is an award granted to individuals that the Royal Society of Arts (RSA) judges to have made outstanding achievements to social progr ...

Nicholas Barr
describes as the "classical definition of income" (the 1938 Haig–Simons definition): "income may be defined as the... sum of (1) the market value of rights exercised in consumption and (2) the change in the value of the store of property rights..." Since the consumption potential of non-monetary goods, such as leisure, cannot be measured, monetary income may be thought of as a proxy for full income. As such, however, it is criticized for being unreliable, ''i.e.'' failing to accurately reflect affluence (and thus the consumption opportunities) of any given agent. It omits the utility a person may derive from non-monetary income and, on a macroeconomic level, fails to accurately chart
social welfare Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet basic human needs Maslow's hierarchy of needs is an idea in psychology Psychology is the science of mind and ...
. According to Barr, "in practice money income as a proportion of total income varies widely and unsystematically. Non-observability of full-income prevent a complete characterization of the individual opportunity set, forcing us to use the unreliable yardstick of money income.


Income growth

Income per capita The median income is the income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms.Smith's financial dictionary. Smith, Howard Irving. 1908. Income is de ...
has been increasing steadily in most countries. Many factors contribute to people having a higher income, including
education Education is the process of facilitating learning, or the acquisition of knowledge, skills, value (ethics), values, morals, beliefs, habits, and personal development. Educational methods include teaching, training, storytelling, discussion ...

education
,
globalisation Globalization, or globalisation (Commonwealth English The use of the English language English is a of the , originally spoken by the inhabitants of . It is named after the , one of the ancient that migrated from , a peninsu ...
and favorable political circumstances such as
economic freedom Economic freedom, or economic liberty, is the ability of people of a society to take economic actions. This is a term used in economic and policy debate Policy debate is a form of debate competition in which teams of two advocate for and against ...
and
peace Peace is a concept of societal friendship and harmony in the absence of hostility Hostility is seen as form of emotionally charged aggressive behavior. In everyday speech it is more commonly used as a synonym A synonym is a word, morph ...

peace
. Increases in income also tend to lead to people choosing to work fewer
hours An hour (symbol A symbol is a mark, sign, or that indicates, signifies, or is understood as representing an , , or . Symbols allow people to go beyond what is n or seen by creating linkages between otherwise very different s and s. All ...

hours
.
Developed countries A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state A sovereign state is a political entity that is represented by one centralized governmen ...
(defined as countries with a "developed economy") have higher incomes as opposed to
developing countries A developing country is a sovereign state with a less developed Industrial sector, industrial base and a low Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no ...

developing countries
tending to have lower incomes.


Income inequality

Income inequality There are wide varieties of economic inequality, most notably measured using the distribution of incomeIn economics Economics () is the social science that studies how people interact with value; in particular, the Production (econom ...
is the extent to which income is distributed in an uneven manner. It can be measured by various methods, including the
Lorenz curve upright=1.2, A typical Lorenz curve In economics, the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O. Lorenz in 1905 for representing Economic inequality, inequality of the wealth di ...

Lorenz curve
and the
Gini coefficient In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science ...

Gini coefficient
. Many economists argue that certain amounts of inequality are necessary and desirable but that excessive inequality leads to efficiency problems and social injustice. Thereby necessitating initiatives like the United Nations
Sustainable Development Goal 10 Sustainable Development Goal 10 (Goal 10 or SDG 10) is about reduced inequality and is one of the 17 Sustainable Development Goals The Sustainable Development Goals (SDGs) or Global Goals are a collection of 17 interlinked global goals design ...

Sustainable Development Goal 10
aimed at reducing inequality. National income, measured by statistics such as
net national incomeIn national income accounting, net national income (NNI) is net national product (NNP) minus indirect tax An indirect tax (such as sales tax, per unit tax, value added tax (VAT), or value added tax, goods and services tax (GST ), excise, consumptio ...
(NNI), measures the total income of individuals, corporations, and government in the economy. For more information see
Measures of national income and output A variety of measures of national income and output are used in economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distr ...
.


Income in philosophy and ethics

Throughout history, many have written about the impact of income on
morality Morality (from ) is the differentiation of intention Intentions are mental states in which the agent commits themselves to a course of action. Having the plan to visit the zoo tomorrow is an example of an intention. The action plan is the '' ...

morality
and
society A society is a group A group is a number A number is a mathematical object used to counting, count, measurement, measure, and nominal number, label. The original examples are the natural numbers 1, 2, 3, 4, and so forth. Numbers can be ...

society
.
Saint Paul Paul the Apostle,; el, Παῦλος, translit=Paulos; cop, ⲡⲁⲩⲗⲟⲥ; he, פאולוס השליח; – AD commonly known as Saint Paul and also known by his Hebrew name Saul of Tarsus,; ar, بولس الطرسوسي; el, ...

Saint Paul
wrote 'For the love of money is a root of all kinds of evil:' ( 1 Timothy 6:10 ( ASV)). Some scholars have come to the conclusion that material progress and prosperity, as manifested in continuous income growth at both the individual and the national level, provide the indispensable foundation for sustaining any kind of morality. This argument was explicitly given by
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
in his ''Theory of Moral Sentiments'', and has more recently been developed by Harvard economist Benjamin Friedman in his book ''The Moral Consequences of Economic Growth''.


Accountancy

The
International Accounting Standards Board The International Accounting Standards Board (IASB) is the independent, accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
(IASB) uses the following definition: "Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants." .70(IFRS Framework). According to John Hicks' definitions, income "is the maximum amount which can be spent during a period if there is to be an expectation of maintaining intact, the capital value of prospective receipts (in money terms)”.


History

John Hicks used "I" for income, but
Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist An economist is a professional and practitioner in the social science Social science is the Branches of science, branch of science de ...

Keynes
wrote to him in 1937, "''after trying both, I believe it is easier to use Y for income and I for investment.''" Some consider Y as an alternative letter for the phonem I in languages like Spanish, although Y as the "" was actually pronounced like the modern German ü or the phonetic /y/.


See also

*
Basic income Universal basic income (UBI) is a sociopolitical financial transfer concept in which all citizens of a given population regularly receive a legally stipulated and equal financial grant paid by the government without a means test A means te ...
*
Comprehensive income In a companies' financial reporting, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use excludes the effe ...
*
Income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
*
Unpaid work Unpaid labor is defined as labor Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or by Caesarean s ...


References

* D. Usher (1987). "real income," ''The New Palgrave: A Dictionary of Economics'', v. 4, pp. 104–5 {{Authority control