What is Income
Income is the amount of money that a person receives after a specified period of time either for his personal services or for the services rendered by his property.
In economics, factor income, is the personal services can be rendered from factors of production. A labor receives his reward in from of wages and entrepreneur in the form of profit for the services rendered. So we can say the wages and profits are the incomes of the people who are working as a labor and entrepreneur respectively. In consumer theory, income is called “budget constraint”, it formula is
Y = Px . x + Py . y
In this formula, Y represent amount to be spent,
x and y are commodities i.e. goods and services, where as
Px and Py are the prices of commodities.
In this equation there are two things worth mentioning, first, if we buy more units of commodity x will result less units of commodity y. So, Px/Py is the relative price of commodity x unit as to the number of commodity y given up. Second, if commodity x price falls for fixed income Y, it relative prices will also fall. Here law of demand says that demand for x commodity will increase if the price falls.
If a person doesn’t work as a laborer or entrepreneur he must have some property which always exists in the form of land and capital. When and land or capital gives to an entrepreneur for the productive use, the reward paid to the owner will be either rent or called interest.
Incomes is a reward paid to any factors of product i.e. labour, entrepreneur, land and capital in the form of wage, profit, rent and interest respectively. It is a form of reward received after a specific timeframe.