Question 1

When the supply curve of a resource is vertical, then the return to the resource owner is

Accepted Answer

A vertical supply curve indicates that the supply of the resource is fixed, regardless of the price. In this case, the resource owner can command a fixed price that is equal to the economic rent - the return to the resource that exceeds the cost of production. Therefore, the return to the resource owner is pure economic rent.

Question 2

The payment for the use of a resource in an amount higher than the resource's opportunity cost is

Accepted Answer

Economic rent is the payment made for the use of a resource that is higher than the resource's opportunity cost. This concept is based on the idea that some resources are scarce or have specialized abilities that allow them to earn a premium price. This situation creates a profit, or "rent," for the owner of the resource.

Question 3

Rents

Accepted Answer

Rents have an allocative function as they determine which use the resource will be put towards. They can also affect incomes, but their primary purpose is to allocate resources efficiently. Therefore, option B is the best choice.

Question 4

If a factor of production with a fixed supply is earning $100 in its current use and its next best use would yield earnings of $80, the factor is earning a pure economic rent equal to

Accepted Answer

Economic rent is the difference between what a factor of production earns in its current use and its next best use. In this case, the factor is earning $100 but its next best use would only yield $80, so the economic rent is $20 ($100 - $80).

Question 5

Economic rents are useful because

Accepted Answer

Economic rents are the excess returns earned by a factor of production, which means that they are earned over and above the minimum amount required to keep that factor in its current use. These excess returns, or economic rents, act as an incentive for owners to allocate their resources to their most productive use, and thus ensure that resources are used efficiently.

Question 6

Economic rent is

Accepted Answer

Economic rent refers to the payment for the use of any resource above its opportunity cost. It is the excess payment made to a factor of production over and above the minimum payment required to retain its services. As such, it applies to all factors of production, not just farmland or landowners. Option A and B are not entirely accurate as they are specific to farmland and landlords, respectively. Option D is a description of rent payment, which is not the same as economic rent.

Question 7

Suppose that Justin Timberlake sells 10,000 tickets to a concerts at $480 each. If the equilibrium price is $600 per ticket for a fixed supply of 10,000 tickets, what is the value of the additional economic rent that Timberlake could earn if he charged the market clearing price?

Accepted Answer

The answer of Suppose that Justin Timberlake sells 10,000 tickets...

Question 8

For superstar athletes,

Accepted Answer

Part of their earnings are economic rent as they receive compensation for their unique talent and abilities that cannot easily be replicated by others. However, they also receive payment for their labor and other factors of production such as capital and entrepreneurship, which are not considered economic rent. Additionally, while they may transition to other careers later in life, the economic rent they earned during their peak athletic years is still considered economic rent.

Question 9

Pure economic rent involves situations where

Accepted Answer

Pure economic rent is a concept where the payment to a factor of production (like land) exceeds what is necessary to keep it in its current use. This situation arises when the supply of the factor is perfectly inelastic, meaning that the quantity supplied does not change regardless of the price. This is because the factor, such as land in a specific location, is fixed in supply.

Question 10

Supermodel Linda Evangelista has been quoted as saying, "[I] don't wake up for less than $10,000 a day." If Ms. Evangelista is paid $15,000 for her next daylong photo shoot, then

Accepted Answer

The answer of Supermodel Linda Evangelista has been quoted as...

Question 11

If Lady Gaga insists that tickets to her concert be sold for $100 each rather than the $500 each that could be charged as reflected by demand for those tickets, then the result will be

Accepted Answer

Setting the ticket price lower than the market-clearing price (what people are willing to pay) will likely result in secondary markets (like scalpers) capturing part of the economic rent by reselling tickets at a higher price. This does not decrease demand or create excess supply; instead, it redistributes the economic rent.

Question 12

The Hawaiian island of Lana'i is privately owned by Castle & Cooke and for generations most of its land was used to grow pineapples. Now, many of the pineapple fields have been replaced by tourist accommodations, including a pair of world-class hotels and a top rated golf course. What would an economist say about this change in land-use patterns?

Accepted Answer

Economic rent theory suggests that resources, including land, will be allocated to their most profitable use over time. The shift from pineapple cultivation to tourism, including hotels and a golf course, on Lana'i indicates that tourism generates higher economic returns than agriculture, thus representing the land's highest valued use according to market forces.

Question 13

-Refer to the above figure. Which panel is consistent with Ricardo's view on the supply of land?

Accepted Answer

The answer of 
-Refer to the above figure. Which panel...

Question 14

If all the return to a resource is economic rent, we know that

Accepted Answer

When all the return to a resource is economic rent, it indicates that the price of the resource is above its opportunity cost. Economic rent is the extra amount earned by a resource beyond its opportunity cost, so if all returns are economic rent, the price must be higher than the opportunity cost.

Question 15

Suppose the supply of land is perfectly inelastic and landowners are receiving payments equal to $25,000 an acre. If the government taxed the landowners' income with a tax rate of 80 percent, how much tax would the government collect?

Accepted Answer

The supply of land is perfectly inelastic, meaning that the amount of land available cannot be changed. Therefore, the price that landowners receive for their land ($25,000 an acre) will not change, even with a tax. The tax rate of 80% means that landowners would be taxed $20,000 (80% of $25,000), so the government would collect $20,000 in tax revenue. The behavior of the landowners is not relevant, as the price of the land is fixed.

Question 16

The payment for a factor of production that is completely inelastic in supply is

Accepted Answer

Economic rent refers to the payment made for factor of production that is completely inelastic in supply. This means that the quantity supplied of this factor cannot be increased or decreased even if the price changes, resulting in a payment that is purely due to the scarcity of the factor. This payment is known as economic rent.

Question 17

If land is reallocated or switched from agricultural use to recreational use, then it is likely that

Accepted Answer

If land is reallocated or switched from agricultural use to recreational use, it is likely that the demand for recreational use of land is higher than the rent earned from using the land for agricultural purposes. This suggests that land earns a higher rent in recreational use than in agricultural use, making it more profitable to use for recreation rather than agriculture.

Question 18

The first economist to analyze economic rent was

Accepted Answer

David Ricardo was the first economist to analyze economic rent in his book "On the Principles of Political Economy and Taxation". He argued that landowners received economic rent due to the scarcity of land and the increasing returns to agriculture. Henry George also wrote extensively on the concept of economic rent in his book "Progress and Poverty", but he came after Ricardo. Marx and Mill also discussed economic rent, but their analysis came after Ricardo's.

Question 19

Economic rent directs resources to

Accepted Answer

Economic rent is the income earned by a factor of production that is in excess of what is required to keep that factor in its current use. This extra income is earned due to various factors such as location, natural resources, and innovation. As a result, economic rent can direct resources to the people who can use them most efficiently, as they will be willing to pay the extra income to access those resources. This can lead to more efficient allocation of resources and economic growth.

Question 20

The concept of economic rent can be applied to

Accepted Answer

Economic rent can be applied to any resource that cannot be replicated exactly. This can include patents, trademarks, unique skills, and rare natural resources, in addition to land. The concept of economic rent focuses on the income earned from a resource that is in limited supply, leading to higher prices due to the lack of availability.

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