California passed a law called "Proposition 2 ½" that limited property taxes to 2.5 percent of property value.Naturally this reduced taxes on many properties, and apartment landlords had more money at the end of the year at given rents.This windfall could be called an economic rent only if
A)we push the definition of economic rent too far.
B)the supply of rental units can be expanded.
C)the supply of rental units is fixed.
D)competitors can build housing at costs that yield the return that was earned before the tax cut.

Question

Quizplus · Accepted Answer

Economic rent refers to the excess profit earned by a factor of production over and above what is required to keep it in its current use. In this case, the reduction in property taxes provided apartment landlords with more profit, but this is not economic rent since the supply of rental units is fixed (i.e. new apartment units cannot easily be created) and there is no excess profit earned above what is required to keep the apartments in their current use, as there is no competition from additional supply.

California Passed a Law Called "Proposition 2 ½" That Limited