Question 1

Suppose Jon Stewart of the "Daily Show" makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewart's annual economic rent to labor is

Accepted Answer

Economic rent is the difference between what Jon earns in his current job and what he could earn in his next best alternative. Here, it's $1,000,000 (current income) - $400,000 (alternative income) = $600,000.

Question 2

David Ricardo used the example of land to demonstrate the concept of rent, as the supply of land is

Accepted Answer

David Ricardo believed that the supply of land is a fixed resource and therefore perfectly inelastic. This means that as demand for land increases, the price of land (or rent) will increase, but the supply of land will not change. Therefore, the correct answer is C) perfectly inelastic.

Question 3

A business which is owned by two or more people is called a

Accepted Answer

A partnership is a business owned by two or more people who share in the profits and losses of the business. A proprietorship is owned by one person and a corporation is a separate legal entity owned by shareholders. Therefore, the best choice based on the given options is B) partnership.

Question 4

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?

Accepted Answer

The answer of A famous opera star made $2 million...

Question 5

Suppose Jon Stewart of the "Daily Show" makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewart's opportunity cost as a producer is

Accepted Answer

The answer of Suppose Jon Stewart of the "Daily Show"...

Question 6

A payment for the use of an input that exceeds the opportunity cost of the input is known as

Accepted Answer

Economic rent is a payment for the use of an input that exceeds the opportunity cost of the input. This happens when a particular input (such as a specialized piece of equipment or a piece of land with unique attributes) is in limited supply and is in high demand, allowing the owner to receive a premium price for its use. Option A is incorrect because real interest is the nominal interest rate adjusted for inflation. Option B is incorrect because economic profit is the total revenue minus total cost, including both explicit and implicit costs. Option D is incorrect because economic cost includes both explicit and implicit costs, but it does not necessarily include economic rent.

Question 7

Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her economic rent is

Accepted Answer

Economic rent is the income earned by a factor of production above its opportunity cost. In this case, Oprah's opportunity cost is what she would have earned as a judge, which is $100,000 per year. Therefore, her annual economic rent is $63 million - ($100,000 per year x number of years she has been making money as a superstar). As we are given no information about the number of years Oprah has been earning $63 million, the best option is to subtract the annual opportunity cost from her yearly earnings to get her economic rent for the given year, which is $62.9 million.

Question 8

Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her opportunity cost is

Accepted Answer

The opportunity cost is the value of the next best alternative foregone. In this case, if Oprah did not earn $63 million as a superstar, she would have earned $100,000 as a judge. Therefore, her opportunity cost of being a superstar instead of a judge is $100,000.

Question 9

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, how much is he being paid in economic rent?

Accepted Answer

Economic rent is the amount of income earned above and beyond what would be necessary to keep a resource in its current use. In this case, the opera star is indicating that he would be willing to switch to a different job (selling insurance) if he could not earn more than $100,000 per year. Therefore, his economic rent is anything above $100,000. Since he currently earns $2 million per year, his economic rent is $1.9 million (which is the amount he earns above the $100,000 threshold). Therefore, the correct answer is C.

Question 10

If the supply curve for land was a vertical line, then any payment made for land would be considered

Accepted Answer

When the supply curve for land is a vertical line, it means that the supply of land is fixed and cannot be increased. Therefore, any payment made for land would be considered as economic rent - the payment made for the use of a fixed and immovable resource that cannot be replicated.

Question 11

The British economist most often associated with the issue of economic rent for land was

Accepted Answer

David Ricardo is widely credited with developing the concept of economic rent, including specifically the idea that landowners can earn income from the use of their land without contributing any effort or investment themselves.

Question 12

In the market for land, if the supply of land is perfectly inelastic, an increase in the demand for land will result in a(n)

Accepted Answer

If the supply of land is perfectly inelastic, then the quantity of land supplied cannot be increased in response to an increase in demand. Therefore, the equilibrium price of land will increase, resulting in an increase in economic rent, which is the payment to landowners for the use of their land.

Question 13

The term "economic rent" refers to payments

Accepted Answer

Economic rent refers to payments made for the use of any resource (not just real estate) that are above its opportunity cost. This can include payments for the use of land, labor, or capital.

Question 14

"Economic rent reflects a waste of resources." Do you agree or disagree? Explain.

Accepted Answer

The answer of "Economic rent reflects a waste of resources."...

Question 15

Which of the following would be most likely to receive high economic rent payments?

Accepted Answer

A professional baseball player is most likely to receive high economic rent payments due to their unique skills and talents which are in high demand and can generate significant revenue for the team and the industry as a whole. Farmers, factory workers, and doctors are all important professions, but do not typically command the same level of economic rent payments as professional athletes.

Question 16

Consider an NBA superstar Kobe Bryant and one of your economics professors. Who is likely to receive more economic rent in his/her job? Explain your answer.

Accepted Answer

The answer of Consider an NBA superstar Kobe Bryant and...

Question 17

If a major league baseball player would be willing to work for $500,000 per year and is currently being paid $1,200,000 per year, that player is earning an annual economic rent of

Accepted Answer

Economic rent is the difference between what a resource earns in its current use and what it could earn if it were used in its best alternative use. In this case, the player's best alternative use would be earning $500,000 per year. Therefore, his annual economic rent would be $700,000 ($1,200,000 - $500,000).

Question 18

If a major league baseball player would be willing to work for $500,000 per year and is currently being paid $1,200,000 per year, the opportunity cost of his decision to play baseball is

Accepted Answer

The answer of If a major league baseball player would...

Question 19

The fundamental goal of a firm or a business is to

Accepted Answer

The fundamental goal of a firm or a business is to earn profits and maximize shareholder value. This translates to earning the highest possible returns on investment. While other factors such as social responsibility and risk management are important to consider, the ultimate goal of a business is to generate profits. Therefore, choice (D) is the best answer.

Question 20

Suppose the supply of ocean front property in California is perfectly inelastic. Any increases in demand for this property increases the

Accepted Answer

When the supply of ocean front property in California is perfectly inelastic, any increase in demand for this property will result in an increase in economic rent, which is the amount of money that a property owner can charge for the use of their property. Since the supply cannot increase to meet the increase in demand, the property owners have more bargaining power and can charge a higher rent. Therefore, the correct answer is A.

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