The following graph shows the labor market. The vertical axis measures wage in dollars, and the horizontal axis measures labor in hours. The economic rent in equilibrium equals _____.
Figure 11.1

A)$40
B)$80
C)$160
D)$16
E)$8

Question

​The following graph shows the labor market. The vertical axis measures wage in dollars, and the horizontal axis measures labor in hours. The economic rent in equilibrium equals _____. ​
Figure 11.1

A)$40 
B)$80 
C)$160 
D)$16 
E)$8

Quizplus · Accepted Answer

The economic rent in equilibrium is equal to the difference between the wage rate and the reservation wage (the minimum wage required for workers to supply their labor). This is shown by the vertical distance between the supply and demand curves at the equilibrium point. In this case, the equilibrium occurs at a wage of $100 (where supply and demand intersect) and a labor supply of 20 hours. At this point, the reservation wage is $20 (where the supply curve intersects the vertical axis), so the economic rent is $80 ($100 - $20 = $80). Therefore, the correct answer is B.

​The Following Graph Shows the Labor Market

The Following Graph Shows the Labor Market