Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 1DQ
To determine
Difference between economical rent and ordinary rent.
Expert Solution & Answer
Explanation of Solution
In everyday life, the term rent is used to explain the payment that is made for the legal borrowing of some goods and services. For example – One pays rent for the use of a flat or apartment; one can also pay the equipment rental company for borrowing equipments. This rent is a part of capital cost of the commodity, added to the maintenance and share of taxes. On the other hand, according to an economist, economic rent is the payment made for the use of land and other natural resources which has fixed supply. For example – Rent on land. No matter how high or low the rent, the same amount of land will be available.
Now, explaining the given statement in the quotation, the land has alternative uses. To use the land in the most way, individuals and firms must compete with each other, and the winners are those who pays the highest rent. This bidding makes sense if the winner expects to make use of the land in the most productive manner than the losers.
Economics Concept Introduction
Concept introduction:
Rent in everyday life: In everyday life, the term rent is used to explain the payment that is made for the legal borrowing of some goods and services. For example – one pays rent for the use of a flat or apartment; one can also pay the equipment rental company for borrowing equipments. This rent is a part of capital cost of the commodity, added to the maintenance and share of taxes.
Rent in terms of economics: According to an economist, economic rent is the payment made for the use of land and other natural resources which has fixed supply. For example – Rent on land. No matter how high or low the rent, the same amount of land will be available.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
1. What determines the economic rent for land? Explain from a supply and demand perspective.
2. How does the supply of land differ from the supply of most labor? How will the effect on price of an outward shift in demand for labor differ from the effect on price of an equivalent shift in the demand for land?
3. David Ricardo, a nineteenth century economist, wrote “The price of corn is not high because a rent is paid, but a rent is paid because the price of corn is high.” Explain this statement in the context of supply and demand.
. Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight-hour day. LO17.8
What is the current labor cost per car sold?
Suppose that when the dealer raises the price of labor to $30 per hour the average number of cars sold by a salesperson increases to two per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased?
Suppose that if the wage is raised a second time to $40 per hour the number of cars sold rises to an average of 2.5 per day. What is now the labor cost per car sold?
If the firm’s goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $20 per hour, $30 per hour, or $40 per hour?…
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1,000 per month. If the company wants to maximize its profits, it should: LO16.5 a. Increase labor while decreasing capital. b. Decrease labor while increasing capital. c. Keep the current amounts of capital and labor just as they are. d. None of the above.
Chapter 18 Solutions
Economics (Irwin Economics)
Knowledge Booster
Similar questions
- 1. Why does price minus extraction cost rise at the rate of interest in a competitive market for an exhaustible resource? In a competitive market for an exhaustible resource, the user cost of producing an exhaustible resource rises at the rate of interest because.. a. Exhaustible resources should be extracted if price minus marginal cost rises faster than the rate of interest. b. Exhaustible resources should be unextracted if price minus marginal cost rises faster than the rate of interest. c. Price minus marginal cost is less than marginal revenue minus marginal cost d. When price minus marginal cost rises at the rate of interest, marginal revenue minus marginal cost rises faster than the rate of interest.arrow_forwardHow does the economist’s use of the term “rent” differ from everyday usage? Explain: “Though rent need not be paid by society to make land available, rental payments are useful in guiding land into the most productive uses.”arrow_forward665 Capital (K) 0 10 Labor (L) O $13.30 O $1.95 O $10.19 O $6.34 317 Please refer to the graph above. Assume that cost is $4,216. What is the capital rental rate? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure.arrow_forward
- PROBLEMS 1. Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $20 per hour and in addition received health benefits at the rate of $4 per hour. Also suppose that by 2010 workers at that plant were paid $21 per hour but received $9 in health insurance benefits. LO17.1 By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010? What was the approximate average annual percentage change in total compensation? By what percentage did wages change at this plant from 2000 to 2010? What was the approximate average annual percentage change in wages? If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period? What if they only consider wages when calculating their incomes?…arrow_forwardConsider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month. LO16.5 a. What is the marginal product of labor? The marginal product of capital? b. What is the ratio of the marginal product of labor to the price of labor (MPL/PL)? What is the ratio of the marginal product of capital to the price of capital (MPK/PK)? c. Is the firm using the least-costly combination of inputs? d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?arrow_forward1. if alpha - 3 / 4 and H - 1000 and L - 200 what is the minimum rent the landlord charges such that the absolute difference between the rent and the share cropping contract for the tenant in the good state ) is twice as large as the difference between the sharecropping and the rent contract in the bad state ) O. 500 O. 350 O. 233.33 O. 300 2. If UIA - A - 1 / 2 , X - 144 , Y - 64.p - 1 / 2 and CE - 1.5 . Calculate the maximum value of a for the imperfect insurance to be incentive compatible and the intercept of the ICC respectively , O. < 0.125, >4. O.arrow_forward
- In 2008 the price index was calculated at 137.9 with 2003 as the base year. In 2009 the price index increased to 148.7. What was the inflation from 2008-2009? O 7.8% O 7.3% O 10.8%arrow_forwardSubscribing to the theory that life is indeed a beach, the residents of La Playa spend all of their money on three things: Every year, they collectively buy 250 bathing suits, 600 tubes of sunscreen, and 400 beach towels. Using the data in Table 8P - 1 , calculate the following . [LO 8.1] a. The total cost of this basket each year 2013 through . b. How much the price of this basket has changed from year to year in percentage terms. threearrow_forwardThe price of a gallon of gasoline in California was $0.99 in 1997, and it is currently $3.69. By what factor have the prices increased? -3.73 O 72 O 27 3.73arrow_forward
- Assume that the productivity of farm labour depends on daily caloric intake, similarly to that depicted in Figure17.4. Using this kind of diagram, compare the efficiency wages that would apply to the following two types of workers: • A landless labourer • A labourer with small plot of land on which he grows staple crops Describe the likely equilibrium unemployment rates and wage rates for landless labourers and small landholders. Judging partially on the basis of this example, what sorts of data and what empirical strategies might you use to see whether nutritional efficiency wages were an important element in the rural labour markets of poor, rural economies?arrow_forwardSuppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent and each worker toils 40 hours per week for four weeks each month. LO17.6 Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre? At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?arrow_forwardLet us assume that four plots of land is currently used for agriculture which are denoted as A,B,C and D where A is the most productive land while D is the least productive land (marginal land). Suppose that the profit rate of land D is 10%. a) What the investors of that country are expected to do in that case if the profit rate in industry is 12% according to Ricardo? Will the D continue to be the marginal land in that case? b) What the investors of that country are expected to do in that case if the profit rate of industry is 8%? Do this lead to a change in what will be the marginal land in that case?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
