Question 1

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 2

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 Now, many of the pineapple fields have been replaced by tourist accommodations, including a pair of world-class hotels and a top rated golf course.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 3

For superstar athletes,

Accepted Answer

Superstar athletes earn part of their earnings as economic rent. This is because their exceptional talent and skills give them a competitive advantage and allow them to earn more than the opportunity cost of their labor. However, part of their earnings also come from their effort and hard work, which is not considered economic rent.

Question 4

Rents

Accepted Answer

Rents have an allocative function as they help decide to which use a resource will be put. For example, the rent on land will determine whether it is used for commercial or residential purposes.

Question 5

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

The economic rent is the difference between the earnings of the factor in its current use and its next best use. In this case, the economic rent is $100 - $80 = $20. Therefore, the answer is option B.

Question 6

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

Accepted Answer

Economic rent refers to the payment made for a resource that exceeds its opportunity cost. It is often used in the context of land, but can apply to any resource for which there is a limited supply and high demand. The concept of economic rent is widely recognized in economics and is not considered irrational or related to proprietorship or reinvestment.

Question 7

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

Accepted Answer

When the supply curve of a resource is vertical, it means that the quantity supplied is fixed regardless of the price. This indicates that the resource is scarce and in high demand, resulting in a pure economic rent for the owner. The owner can charge a high price for the resource without affecting the quantity supplied, thus earning a higher return without any additional opportunity costs or profits. Therefore, the best choice is option D.

Question 8

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 9

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 10

The concept of economic rent can be applied to

Accepted Answer

Economic rent refers to the income earned by a factor of production that is in limited supply and cannot be replicated exactly. This includes not only land and natural resources, but also other factors such as patents, copyrights, and unique skills or talents. Therefore, choice D is the correct answer as it includes any resource that meets these criteria.

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

Accepted Answer

A completely inelastic factor of production means that it cannot be increased or decreased in response to changes in demand or price. This means that its price is determined solely by the demand for it, rather than by the cost of producing it. Therefore, any payment for this factor of production above and beyond its opportunity cost (the next best alternative use) is considered economic rent.

Question 13

Economic rent is

Accepted Answer

Economic rent refers to the payment that one makes to use any resource above its opportunity cost. It is not specific to just farmland or landlords. Option D, referring to payment for land, an apartment or a house that one does not own, is more commonly known as rental payment or lease payment.

Question 14

-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 15

Economic rent directs resources to

Accepted Answer

Economic rent is the payment received by a factor of production that exceeds the minimum amount necessary to keep that factor in its current use. This means that resources are directed towards the people who can use them most efficiently, as they are willing and able to pay the higher economic rent. This allocation of resources based on efficiency helps to increase overall economic productivity.

Question 16

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

Economic rent is the extra income earned by a factor of production above the minimum amount necessary to keep it in its current use. In this case, Linda Evangelista's statement implies that she has a high opportunity cost for her time and is therefore able to command a high fee for her modeling work. If she is paid $15,000 for a day-long photo shoot, it means that $10,000 is the base amount she requires for her time, and the additional $5,000 represents the economic rent to labor. Therefore, option D is the correct choice.

Question 17

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

Accepted Answer

If land earns a higher rent in recreational use than in agricultural use, then it is more profitable for landowners to switch to recreational use. This suggests that the demand for recreational land is higher, possibly due to factors such as rising incomes or changing preferences, compared to the demand for agricultural land. Therefore, reallocation of land from agricultural to recreational use is based on economic incentives rather than a decrease in the demand for food. The other answer choices are not necessarily supported by the information provided.

Question 18

Economic rents are useful because

Accepted Answer

Economic rents help to allocate resources to their most efficient use. This is because if a resource is generating economic rent, it means that it is earning more than the minimum necessary to keep it in its current use, indicating that it is highly valued by society. As a result, entrepreneurs are more likely to invest in and allocate resources to those areas where they can earn economic rents, leading to greater efficiency in the use of resources.

Question 19

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 20

The first economist to analyze economic rent was

Accepted Answer

David Ricardo was the first economist to analyze economic rent in his book "Principles of Political Economy and Taxation" published in 1817.

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