Consider two resource markets in which the demand curves slope downward.In market A, the supply curve is horizontal, equilibrium price is $6, and 100 units of the resource are hired.In market B, the supply curve is vertical, equilibrium price is $20, and 30 units of the resource are hired.Which of the following is true?
A)All of the resource earnings in market A are opportunity costs.
B)All of the resource earnings in both markets are opportunity costs.
C)All of the resource earnings in market B are opportunity costs.
D)None of the resource earnings in either market is an opportunity cost.
E)None of the resource earnings in either market is economic rent.

Question

Quizplus · Accepted Answer

In market A, the supply curve is horizontal, meaning that suppliers are willing to sell as much of the resource as demanded at the given price of $6. This means that the market-clearing wage of $6 is the opportunity cost of hiring the resource, since if employers want to hire more units of the resource, they will have to pay a higher wage. Therefore, all of the resource earnings in market A are opportunity costs. In market B, the supply curve is vertical, meaning that there is a fixed quantity of the resource available, regardless of the price. Therefore, the wage of $20 is not an opportunity cost, as it does not reflect the value of alternative uses of the resource.

Consider Two Resource Markets in Which the Demand Curves Slope