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Residual Claimant Theory of Wages And Its Limitations

This theory was putforth by the American economist Francis A.Walker. According to this theory, wages are the residue left over after the other factors of production have been paid their remuneration, whatever us left over after making payment to other factors consitutes wages.  Thus, wages are equal to the total income minus rent, interest and profits. According to this theory if the worker works hard and increase the total production, there is every possibility of their wages going up with the passage of time. Therefore, the theory is quite optimistic …

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Subsistence Theory Of Wages And Its Criticism

The subsistence theory of Wages was formulated by physiocrats in the 18th centruy. This theory was further developed by a German Economist namely Lassole. This theory was called as the Iron Law of wages. Karl Marx formulated his theory of surplus value on the basis of this theory. According to this theory, wages are fixed at the level at which the size worker is able to maintain his family at a minimum subsistence. If the wages in are greater than the minimum subsistence level, it is an incentive to marry …

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12 Causes Of Wages Inequality In Developing Countries

Wage rates are not same in all occupations. They differ from occupation to occupation and from person to person in the same occupations and from place to place. The following are the causes for differences in wages between occupation to occupation. 1. Training time and cost of training : Occupation like engineering, medicine etc. require costly education and training. As such, these jobs should have high wages. Otherwise people will not be willing to take up such occupations. On the other hand, in the Occupations where the cost of training …

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10 Factors Determining Real Wages Of Workers

The price paid for the services of labour is called wage. Wages are of two types : 1) Money wage, 2) Real wage. The wage which is expressed in terms of money is called ‘Money wage’. Money wage is also known as, ‘Nominal wage’. Real wage refers to the quantity of goods and services that can be purchased with the help of money wage. Real wage should include not only money wage but also all the advantages, concessions and facilities which are provided to a worker. Real wage is determined …

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Knight’s Uncertainty Theory of Profits And Its Limitations

Uncertainty Theory of Profits : Uncertainty Theory Of Profit has formulated by Prof. Knight. According to Prof. Knight the main function of the entrepreneur is Uncertainty bearing and not risk taking. He divides risks into two classes. 1 ) Forseeable risks and, 2) Unforeseable risks. 1. Foreseable Risks : These risks can be foreseen and estimated in advance. Example, fire accidents, marine accidents, theft etc. All these risks can be ensured with an insurace company. If there is any loss that insurance company pays the total value of the lost …

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Joseph Schumpeter’s Innovation Theory of Profits And Its Limitations

Joseph Schumpeter formulated the Innovation Theory of Profits. According to this theory, the entrepreneur gets profits only by introduction of innovations. The primary responsibility of entrepreneur is to introduce innovations in the production process which may give rise to profits. Changes relating to the production process and marketing are called innovations. Entrepreneur introduce innovations in order to increase the gap between cost of production and price and this will lead to more profits. Following are some of the innovations 1. Implementation or introduction of new techniques in the production process. …

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Hawley’s Risk Theory Of Profit And Its Criticism

Risk taking Theory of Profits : The risk theory of profit was formulated by F. B. Hawley in 1893. He says, that profit is the reward for risks and responsibilities that an entrepreneur undertakes himself. According to him, risks in business arise from product obsolescence, fall in prices, superior substitutes, natural calamities or scarcity of certain factors of production. Many people do not prepare to undertake risk. If an entrepreneur is prepared to undertake risks he gets more profit. If the element of risk is high in the business the profits also …

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Clark’s Dynamic Theory of Profit And Its Criticism

The Dynamic Theory of Profits was introduced by J. B Clark. According to him profits come only in dynmic economy but not in static economy. Dynamic economy means the economy in which frequent changes will occur. In static economy there is no possibility of coming changes. In static economy there will not be any change both in demand and supply. So, profits cannot arise. According to Clark the following things exist in a static economy. In such society the demand for goods can be estimated easily. There is no risk …

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Rent Theory of Profit And Its Criticism

The Rent Theory of Profit was first introduced by Senior and Mill. Later this theory was developed by the American Economist F. L. Walker. He regarded profits as the rent of ability. According to him, there was a good deal of similarities between rent and profit. As per Rent Theory of Profit, rent was the reward for the use of land, while profit was the reward for the ability of the entrepreneur. Just as lands differ in fertility, entrepreneurs differ in business ability. Due to the differences in the fertility …

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Difference Between Gross Profit And Net Profit In Economics

Meaning : Profit is the reward for the services of the organizer.  It is the residual income which is equal to the difference between the total revenue and cost of production. Profits = Total revenue — Total costs. Profits are divided into two categories (1 ) gross profits and (2) net profits. A. Gross profits : Gross profit refers to the surplus income over and above cost of production. In other words, gross profit means the surplus income that remains in the hands of the entrepreneurs after paying rent, wages …

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