Which example correctly shows the difference between a transfer payment and a factor payment?
Answer and explanation
Correct answer: A scholarship is a transfer payment, while a wage is a factor payment
A factor payment is made in return for a current productive service, such as wages paid for labour, rent for land, interest for capital, or profit for enterprise. A scholarship is generally received without supplying a current factor service in return, so it is treated as a transfer payment. This distinction prevents incorrect inclusion in factor income.
Frequently asked questions
What is the correct answer to this question?
A scholarship is a transfer payment, while a wage is a factor payment
Why is this the correct answer?
A factor payment is made in return for a current productive service, such as wages paid for labour, rent for land, interest for capital, or profit for enterprise. A scholarship is generally received without supplying a current factor service in return, so it is treated as a transfer payment. This distinction prevents incorrect inclusion in factor income.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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