Someone withdraws $10 000 from an account that paid 10% annual interest and used the funds to purchase real estate. After one year that person sold the real estate property for $10 500. An Economist would calculate the economic profit on the real estate sale to be:

Question

Quizplus · Accepted Answer

The economic profit is calculated by considering the opportunity cost of the next best alternative. The opportunity cost here is the interest that could have been earned if the $10,000 had remained in the account, which is $1,000 (10% of $10,000). The actual profit from the real estate sale is $500 ($10,500 - $10,000). Therefore, the economic profit is $500 - $1,000 = -$500.

Someone Withdraws $10 000 from an Account That Paid 10