The concept of economic rent.
Concept Introduction:
Economic rent refers to the payment for the use of a resource over and above its
Explanation of Solution
Economic rent refers to the payment for the use of a resource over and above its opportunity cost. In other words, it is the positive difference between the amount received by a factor of production and the amount of expected payment. In this regard, economic rent can be treated as the surplus amount a factor gets for his service. Economic rent allocates a scarce resource to its best valued use.
For instance, a company wishes to hire a machine for $20, while the supplier of machine has a limited capacity to supply these machines. The seller is willing to sell it for $15. In this case, the machine earns an economic rent of
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Chapter 21 Solutions
Economics Today: The Micro View (19th Edition) (Pearson Series in Economics)