Contents 1 Increase in income 2 Economic definitions 2.1 Full and Haig-Simons income 3
Increase in income[edit]
Y displaystyle Y to be spent on different goods x and y in quantities x displaystyle x and y displaystyle y at prices P x displaystyle P_ x and P y displaystyle P_ y . The basic equation for this is Y = P x ⋅ x + P y ⋅ y displaystyle Y=P_ x cdot x+P_ y cdot y This equation implies two things. First buying one more unit of good x implies buying P x P y displaystyle frac P_ x P_ y less units of good y. So, P x P y displaystyle frac P_ x P_ y 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 displaystyle Y , then its relative price falls. The usual hypothesis is that the
quantity demanded of x would increase at the lower price, the law of
demand. The generalization to more than two goods consists of
modelling y as a composite good.
The theoretical generalization to more than one period is a
multi-period wealth 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.
Full and Haig-Simons income[edit]
Main article: 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
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.[3] As
such, however, it is criticized[by whom?] 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. 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.
Look up income in Wiktionary, the free dictionary. Basic income
Comprehensive income
References[edit] ^ Smith's financial dictionary. Smith, Howard Irving. 1908.
D. Usher (1987). "real income," The New Palgrave: A Dictionary of Economics, v. 4, pp. 104–05 Authority control GN |