In economics, when we refer to income, generally we mean
money income. According to Seligman, 'Income in the economic sense, is the flow
of satisfactions from economic goods'. We know that all economic goods form
wealth. The main source of income is wealth. For example, if you own a house,
it is your wealth. If you get rent from it, it is your income. There are two
points about income - time and amount.
There are two kinds of income - (1) money income and (2)
Real Income. Generally people earn their incomes in the form of money.
Money income is also known as nominal income. But the
standard of living of people of a country depends on their real income. Real
income depends upon the purchasing power of money and that in turn depends on
the price level. Real income refers to the command of a person over actual
commodities and services. Just because money incomes of people increase, we
cannot say they are better off. It all depends upon how many goods they can
Suppose, my money income is Rs. 10, and price of one kilo of
rice is Rs. 10, then I can buy one kilo of rice or my income is worth of only
one kilo of rice. In the next month, my money income is raised to Rs. 15, but
the price of one kilo of rice is increased to Rs. 20. Now my income is worth only
¾ kilo of rice. Therefore, in spite of increase in money income, my real income
has come down due to higher increase in price. Real income is price adjusted money income.
National Income : National income refers to the value of
commodities and services produced by a country during a year.
Marshall defined national income as follows : 'The labour
and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities, material and immaterial, including
services of all kinds……… This is true net annual income or revenue of the
country, or the national dividend'.
From the national income of a country, we can find out
whether the country is rich or poor. And from the composition of national
income, we can find out the relative importance of agriculture, industry and
service sector in the economy.
We get per capita income [(i.e) income per person per year]
by dividing national income by the population of the country.
Per capita income = National Income/Population