Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 32, Problem 1E
To determine
(a)
Economic rent and transfer earning
Expert Solution
Explanation of Solution
The given demand supply curve is perfectly inelastic; hence, when the supply is totally inelastic, the transfer earning would be zero. Hence, there would be only economics rent and no transfer earnings.
Graph showing the Economic rent in the perfectly inelastic supply demand curve.
The area ABCD represents the All Economic rent; there are no transfer earnings since the same amount would be supplied at a price of 0is supplied at market price.
Economics Concept Introduction
Introduction:
Economic rent is the amount paid to the factor of production which is excess of what is economically or socially necessary.
Transfer earning is the minimum amount which is to be paid so that labour do not move to other occupation.
To determine
(b)
Impact on economic rent and transfer earning when demand increases.
Economic rent and transfer earning
Expert Solution
Explanation of Solution
If the demand increased, there would be a shift in the demand curve to the right resulting the price increased from $ A to $ E.
The price in increase therefore results in the increase of economic rent.
Economics Concept Introduction
Introduction:
Economic rent is the amount paid to the factor of production which is excess of what is economically or socially necessary.
Transfer earning is the minimum amount which is to be paid so that labour do not move to other occupation.
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