Question 1

A portion of a worker's earnings is economic rent if the worker

Accepted Answer

Economic rent refers to the portion of income paid to a factor of production (in this case, labor) over and above what is needed to keep that factor in its current use. If a worker would accept a small reduction in pay without quitting, it suggests that part of their current earnings exceeds the minimum necessary to keep them in their job, thus constituting economic rent.

Question 2

For an individual who has special talent as an entertainer, a large proportion of his salary can be considered

Accepted Answer

When a person has a special talent as an entertainer, they may be able to command a higher salary than others in the same industry due to their unique skills. This extra income can be considered economic rent, which is income earned above and beyond what is required to keep the individual in that job. It is not a fixed cost, as it can vary depending on the individual and their level of skill. It is also not necessarily below opportunity cost or non-taxable.

Question 3

Economic rent is defined as

Accepted Answer

Economic rent is defined as a payment to an owner of a factor that is greater than the opportunity cost of utilizing the factor. This means that the owner of the factor is receiving a payment that is not necessary to keep them utilizing that factor, but is based on the scarcity of that factor and the demand for it. Economic rent usually arises in situations where the supply of a factor is limited, such as land or natural resources.

Question 4

Ricardo's assumption for economic rents for land was based on

Accepted Answer

Ricardo assumed that the supply of land is a fixed quantity, meaning that the amount of land available for use is limited and cannot be increased. This assumption is a key foundation for his theory of economic rent, which posits that landowners can earn rents above and beyond the costs of production due to the scarcity of land.

Question 5

For an individual such as a movie star or a pop singer whose natural talents are almost impossible to duplicate,

Accepted Answer

Part of their earnings consists of economic rents because their natural talents are highly valuable and cannot be easily replicated by others, creating a scarcity that allows them to command high prices for their services. This is an example of economic rent, which applies to any factor of production that is scarce and highly valued. However, it is important to note that not all of their earnings consist of rent, as they may also earn from other sources such as royalties, sponsorships, or business ventures.

Question 6

A key assumption of Ricardo's economic rent concept was that

Accepted Answer

Ricardo believed that all land is equally productive and therefore, any revenue earned from land beyond what is required to bring it into production is considered economic rent.

Question 7

Economic rent is broadly defined as

Accepted Answer

Economic rent refers to the payment received for the use of a resource (land, labor, capital) that has a fixed supply. This payment is above and beyond what is necessary to bring the resource into use. It is considered a surplus payment and is not related to any effort or cost on the part of the owner of the resource. Therefore, option A (a payment received by a landowner) is not a comprehensive definition of economic rent. Option C (return to owners of farmland) is too specific to only one type of resource. Option D (dividend return on a share of stock) is not related to economic rent at all.

Question 8

Pure economic rent is a payment to a resource that

Accepted Answer

Pure economic rent is a payment to a resource that has a perfectly inelastic supply, meaning that no matter how much demand there is for the resource, the supply cannot increase. This leads to scarcity and the ability for the resource owner to charge a higher price or receive a higher rent than would exist in a perfectly competitive market.

Question 9

Pure economic rent is

Accepted Answer

Pure economic rent refers to the payment made to a resource owner over and above what is necessary to keep the resource in its current use. It is a surplus payment that arises due to scarcity and can be earned by an owner of any type of resource, such as land, labor, or capital. Therefore, option A is the correct answer. Option B describes normal profit, which is the minimum payment required to keep the supply of a resource constant. Option C is incorrect because economic rent is not the inverse of economic profit, which is the difference between total revenue and total costs. Option D is incorrect because it refers to the competitive rental rate for capital, which is not the same as pure economic rent.

Question 10

An individual would willingly give a concert for $2,000. If she is paid $5,000 for the concert, she is

Accepted Answer

The answer of An individual would willingly give a concert...

Question 11

In analyzing land rent, David Ricardo constructed a model based on

Accepted Answer

In Ricardo's model, he assumed that the supply of land is perfectly inelastic, meaning that the amount of land available cannot be increased or decreased in response to changes in demand, which is a key factor in determining land rent.

Question 12

A payment for the use of any resource over and above its opportunity cost is called

Accepted Answer

Economic rent is the payment made for the use of a resource over and above its opportunity cost, reflecting its scarcity relative to demand. Accounting profit only takes into account explicit costs and ignores implicit costs such as opportunity cost, while economic profit factors in both explicit and implicit costs. Normal cost is simply the cost of a resource used in production, without any additional payment for scarcity.

Question 13

Economic rent is any payment

Accepted Answer

Economic rent is any payment received by the owner of a resource in excess of the resource's opportunity cost. If the payment is equal to the opportunity cost, then there is no economic rent. Therefore, option C is the best choice.

Question 14

Economic rent is a concept that can be applied

Accepted Answer

Economic rent refers to a payment or return to a factor of production that is in fixed supply, meaning its quantity cannot be increased even in response to higher demand. This applies not only to land, but also to other factors such as unique talents or skills, patented technologies, or rare natural resources. Therefore, options A and B are too narrow in scope, while option D is incorrect as it describes any resource with a positive supply curve, regardless of whether its supply is fixed or elastic.

Question 15

-Refer to the above figure. What can we say about economic rent?

Accepted Answer

The answer of 
-Refer to the above figure. What can...

Question 16

World-class models receive significant economic rents because

Accepted Answer

Economic rents are above-normal profits that result from the scarcity of a factor of production. In the case of world-class models, their talents and abilities are in a fixed supply, meaning there are only a limited number of individuals who possess the exceptional qualities required to become world-class models. As a result, they can command higher fees for their services, which translates into economic rents. Therefore, choice A is the correct answer.

Question 17

The concept of economic rent is associated with the economist

Accepted Answer

The concept of economic rent is closely associated with David Ricardo, a British economist who lived in the late 18th and early 19th centuries. Ricardo argued that landowners often earned economic rent by charging for the use of their land, even if that land wasn't particularly valuable or useful. This concept of rent played an important role in Ricardo's theory of economic growth and development, as well as in later discussions of income distribution and inequality. While Adam Smith and Karl Marx are also influential economists from the same time period, they are not directly associated with the concept of economic rent. Henry George, on the other hand, was a later economist who wrote extensively about rent and its relationship to poverty and inequality. However, he is not typically considered the originator of the concept.

Question 18

Economic rent applies to

Accepted Answer

Economic rent refers to the amount paid for the use of any limited resource that has a fixed supply, including land, natural resources or even specialized labor. Therefore, option D is correct. Options A, B, and C are incorrect as economic rent is not limited to land or real property only, but applies to all resources that have a fixed supply.

Question 19

According to Ricardo's explanation of land rent, what happens when the demand for land increases?

Accepted Answer

According to Ricardo's theory of land rent, when demand for land increases, the supply of land is fixed and unable to increase. Therefore, the price of land will rise, leading to an increase in both revenues to owners of land and economic rent.

Question 20

A dedicated teacher loves being in the classroom and would teach for $40,000 per year, but he is actually paid $55,000 per year. This individual

Accepted Answer

Economic rent is the difference between what a person is paid and what they would be willing to accept to do the same job. In this case, the teacher would be willing to teach for $40,000 per year but is actually paid $55,000 per year. Therefore, the teacher receives an economic rent of $15,000 (option D). Accounting profit refers to the monetary profit left after deducting explicit costs from revenue. Opportunity cost is the cost of the next best alternative foregone, which in this case would be the difference between what the teacher is actually paid and what they could be paid in their next best alternative job, which is not given.

Quiz 21: Rents, Profits, and the Financial Environment of Business