MICROECONOMICS W/CONNECT ACCESS CODE
21st Edition
ISBN: 9781260720648
Author: McConnell
Publisher: MCG
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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.
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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.
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.
How 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.”
Chapter 18 Solutions
MICROECONOMICS W/CONNECT ACCESS CODE
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