To Find: The relative economic rent from the following inputs.
Answer to Problem 1TY
(A & B) petroleum and championship horserace include relatively large economic rent in their earrings.
Explanation of Solution
Economic rent is not the same for everyone as it depends upon the purpose of the usage of land and the area of land that is rented by the owner. Economic rent depends upon the availability of land in the market.
When a firm produces nuts and bolts, it needs a relatively smaller portion of land to build a factor. In contrast, petroleum and a champion horserace need a large portion of land to build the plant and to make an activity, such that petroleum needs heavy plants and machinery, and a champion horserace needs a large field to use for horserace. Land for nuts and bolts can be available easily in the market, but the land for petroleum plants and championship horserace is difficult to find as it needs a suitable place to make economic activity.
Therefore, there is a larger supply of land for nuts and bolts as compared to the other two activities. As a result, a producer of nuts and bolts needs to pay lower economic rent, and the producer of petroleum and champion horserace needs to pay higher economic rent.
In the market, economic rent refers to the income gain earned by providing own land to any other individual for use. The landowner will collect income in the form of rent, and this rental income is the only income that can be generated from the land.
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Chapter 18 Solutions
Microeconomics: Principles & Policy
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