Question

Distinguish between factor payments and transfer payments? (4 points)

Answer 1

1)Factor payments;
-Interest is payed for the service of capital.
-They are all included in national income.
-They are regarded as reward or compensation to factors of production for productive services rendered by them in the production process and for them these are factor income.
-Payment made to factor production in return for rendering productive services.
2)Transfer payment;
-It is payment received without any good or services provided in return.
-It is an unearned income i.e old age pension and scholarship to students.
-It is a receipt concept.
-They are payments which are received without making any corresponding contribution to the flow of goods and services.