Economic rent serves

Question

Quizplus · Accepted Answer

Economic rent, which refers to the extra income earned by a factor of production in excess of the minimum amount necessary to keep it in its current use, does serve an allocative function by guiding available supplies to the most efficient use. This is because, in a market economy, factors of production are typically allocated to their most valuable use based on the value they generate for consumers. Economic rent provides a price signal to producers that a particular factor of production is in high demand, thereby allowing resources to flow towards activities that generate the most value for society.

Economic Rent Serves