If the supply curve for a factor is perfectly inelastic, the payments to the factor are
A) neither economic rent nor transfer earnings.
B) wholly economic rent.
C) an unnecessary tax on the factor.
D) partly economic rent and partly transfer earnings.
E) wholly transfer earnings.

Question

Quizplus · Accepted Answer

If the supply curve for a factor is perfectly inelastic, it means that no matter the price being offered for the factor, the quantity supplied remains the same. This implies that the factor is unique and cannot be substituted with any other factor. Hence the payments to the factor are wholly economic rent, which is the payment for a factor that is in fixed and limited supply.

If the Supply Curve for a Factor Is Perfectly Inelastic