A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, how much is he being paid in economic rent?

Question

Quizplus · Accepted Answer

Economic rent is the amount of income earned above and beyond what would be necessary to keep a resource in its current use. In this case, the opera star is indicating that he would be willing to switch to a different job (selling insurance) if he could not earn more than $100,000 per year. Therefore, his economic rent is anything above $100,000. Since he currently earns $2 million per year, his economic rent is $1.9 million (which is the amount he earns above the $100,000 threshold). Therefore, the correct answer is C.

A Famous Opera Star Made $2 Million Per Year