Question

Differentiate between factor income and transfer income.

Hint:

Factor income is earned through production, while transfer income is given as financial assistance or gifts.

Answer 1

Factor Income: Factor income refers to the income earned by factors of production such as labor, capital, land, and entrepreneurship. Examples of factor income include wages, profits, rent, and interest. Transfer Income: Transfer income refers to income transferred from one individual to another without the exchange of goods or services in return. Examples of transfer income include pensions, allowances, gifts, and social security benefits.