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Personal distribution means the distribution of national income among various individuals or persons in the society. We know national income not equally distributed amongst the various individuals in the country. Some are rich while others are poor. There is inequalities of income in the society. The theory of personal distribution studies how personal incomes of individuals are determined and how income inequalities come into picture.

Functional distribution, on the other side, means the distribution of national income amongst the factors of production. Functional distribution studies how various factors of production are rewarded for their services or functions performed by them in the production process. It studies how the prices of various factors, like, land, labour, capital and enterprise are determined. The prices of these factors known as rent, wages, interest and profit. In this theory of functional distribution, we study how the rent of land, wages of labour, interest on capital and profit of entrepreneurs are determined. It is the theory of factor pricing.

Personal distribution depends upon functional distribution. How much income an individual will get depends on the price and the amount of a particular factor which he owns as well as the prices and amounts of others factors which he posses.

For eg- the personal income of a landlord depends not only on the amount of rent which he gets but also on the quantity of land which he owns as also the amount of interest which he earns on his capital which he may have lent. The total income from rent and interest will make up his personal income.

Personal distribution, therefore, may include income which an individual earns by way of rent, interest, profits etc.

whereas functional distribution studies and determines the income of a particular factor, that is, rent of land or interest on capital.

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