How does a market economy determine income?

Prices in a market economy determine income. An individual's income is the difference between his costs and his revenues. The more the producer produces, the higher his costs are. Higher costs lead to higher prices, which enable the producer to afford the higher costs. So producers try to economize on costs or to use the most efficient techniques of production. Higher returns are an inducement to work, and they produce and function to direct resources from one use to another because the various factors of production go where they earn the highest return. A distortion is introduced into the market when the government interferes with minimum wage, price controls and price supports.