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Innovation theory was propounded by Joseph. A. Schumpeter.

Profit is the reward for “Innovation”. Innovation means invention put into commercial practice.

An innovation may consists of: 

1. Introduction of a new product. 

2. Introduction of a new method of production. 

3. Opening up of a new market. 

4. Discovery of new raw materials. 

5. Reorganization of an industry/firm. 

6. Anyone of these innovations leads to a reduction in the cost of production and thereby brings profit to an entrepreneur.

1. Risk bearing theory of profit was propounded by the American economist F.B. Hawley in 1907. 

2. According to him, profit is the reward of “ risk taking” in business. 

3. Risk taking is an essential function of the entrepreneur and is the basis of profits. 

4. It is a well know fact that every business involves some risks. 

5. Since the entrepreneur undertakes the risks, he receives profit.

6. If the entrepreneur does not receive the reward, he will not be prepared to undertake the risks. 

7. Every entrepreneur products goods in anticipation of demand. 

8. It is the profit that induces the entrepreneurs to undertake such risks.

Innovation Theory of profit was given by Schumpeter.

(a) Man-made appliances

Rent is the price or reward given for the use of land or house or a machine to the owner But, in Economics, “Rent” or “Economic Rent” refers to that part of the payment made by a tenant to his landlords for the use of land only.

Correct Answer is: (d) Marshall

Correct Answer is: (d) Ricardo

The Classical Theory or Rent was propounded by Ricardo.

(b) Precautionary motive

Residual Claimant Theory is propounded by Walker.

Correct Answer is: (c) interest

(b) Liquidity Preference Theory

(b) Theory of factor-pricing

(d) Neo-Classical Theory

1. Nominal wages or money wages : Nominal wages are referred to as the wages paid in terms of money.

2. Real wages : Real wages are the wages paid in terms of goods and services. Hence, real wages are the purchasing power of money wages.

3. Piece wages : Wages that are paid on the basis of quantum of work done. 

4. Time wages : Wages that are paid on the basis of the amount of time that the worker works.

Interest is the price paid for the use of capital in any market.

1. The entrepreneur coordinates all the other three factors (land, labour and capital) of production. 

2. Entrepreneur is rewarded for his services in the form of profit. 

3. Profit is a return to the entrepreneur for the use of his entrepreneurial ability. 

4. It is the net income of the organizer. 

5. Profit is the amount left with the entrepreneur after he has payments made for all the other factors (land, labour and capital) used by him in the production process.

Liquidity preference is the preference to have an amount of cash rather than of claims against others.