Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 18, Problem 7DQ
To determine
The role of economic rent when a company sues other.
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Grace owns a house. She can rent her house for two years to one tenant for a profit of $24,000 a year, or she can rent it to two tenants each year for a profit of $10,000 per tenant per year. Calculate the economic rent over the course of two years of renting to one tenant.
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.”
Economists Conclude that a tax on the revenues of firms will be shifted in part to consumers of the products of those firms in the form of higher prices. However, they believe that a tax on the rent of land usually cannot be shifted and must be paid entirely by the landlord. What explains the difference?
Chapter 18 Solutions
Economics: Principles & Policy
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- Recall our example of t-shirt manufacturing in Lubbock. You started the business with your friend and selling each t-shirt for $10. However, people are not buying from you. Why is that happening? Now you figured that there are cheaper means to produce each t-shirt at $7 and you changed your t-shirt price to $9 making some positive economic rent. Will this last forever? Why or why not?arrow_forwardRefer to the diagram to the right: Land is the other (fixed) factor of production. Currently the real wage is $15. Calculate the change in land rents due to a $5 increase in the real wage. A Land rents = $. (Enter your response rounded to the nearest dollar. Be sure to include the minus sign if necessary.) 60- 55- 50 45- 40- 35 30- 25- 20- 15- 10- 5- 0+ 0 Marginal product of labor, MPL 10 Real Wage Real Wage MPL 20 30 40 50 60 70 80 90 100 110 Labor, Larrow_forwardDiscuss Ricardo’ theory of rentarrow_forward
- Are the statements below true or false? Briefly explain why you have chosen your answer f)Under a “Pure Wage Contract" in agriculture, the wage is simply equal to the fixed rent of the contract.arrow_forwardState whether the following is true or false Pure economic rent occurs when the opportunity cost of a resource is zero and there is a positive price for that resources in the marketarrow_forwardA carpenter quits his job at a furniture factory to open his own cabinetmaking business. In his first two years of operation, his sales average $100 000 per year and his operating costs for wood, workshop and tool rental, utilities, and miscellaneous expenses average $70 000 per year. Now his old job at the furniture factory is again available. What is the lowest wage at which he should decide to return to his old job? Why?arrow_forward
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