Economics Today: The Micro View (19th Edition) (Pearson Series in Economics)
Economics Today: The Micro View (19th Edition) (Pearson Series in Economics)
19th Edition
ISBN: 9780134479255
Author: Roger LeRoy Miller
Publisher: PEARSON
Question
Chapter 21, Problem 21.1LO
To determine

The concept of economic rent.

Concept Introduction:

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.

Expert Solution & Answer
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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 Economics Today: The Micro View (19th Edition) (Pearson Series in Economics), Chapter 21, Problem 21.1LO

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