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Chapter 17: Problem 22

Which statement is true? (LO2) a) Only the owners of labor can earn an economic rent. b) Only the owners of land can earn an economic rent. c) Both the owners of land and labor can earn an economic rent. d) Neither the owners of land nor the owners of labor can earn an economic rent.

Short Answer

Expert verified
Both the owners of land and labor can earn an economic rent. Therefore, the correct answer is option C.

Step by step solution

01

Definition of Economic Rent

Economic rent is the excess income or payment earned by a factor of production (land, labor, capital) above its opportunity cost. It is the extra income that is received when a factor of production is paid more than its minimum viable amount.
02

Option A

According to option A, only the owners of labor can earn an economic rent. However, this is not accurate because both the owners of land and labor can earn an economic rent. It's not exclusive to labor owners.
03

Option B

Option B states that only the owners of land can earn an economic rent. Similar to option A, this is also incorrect because the concept of economic rent is not exclusive to landowners; labor can also earn an economic rent.
04

Option C

Option C suggests that both the owners of land and labor can earn an economic rent. This is true, as both factors of production (land and labor) can receive income above their opportunity cost, indicating that they earn an economic rent.
05

Option D

Finally, according to option D, neither the owners of land nor the owners of labor can earn an economic rent. This statement is incorrect because, as mentioned earlier, both land and labor can generate economic rent.
06

Conclusion

Based on the understanding of economic rent and its application to land and labor, option C is the correct answer to this question, stating that both the owners of land and labor can earn an economic rent.

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Most popular questions from this chapter

Which statement is true? (LO5) a) A dollar today is worth more than a future dollar because of inflation. b) A dollar in the future is generally worth more than a dollar today. c) There is no way to determine whether a future dollar is worth more or less than a dollar today. d) A dollar today is worth more than a dollar in the future.

Which economist believes all profits are linked with uncertainty and risk? (LO6, 7) a) Frank Knight c) Karl Marx b) Joseph Schumpeter d) John Maynard Keynes

The present value of a dollar declines as (LO5) a) the interest rate declines and the number of years you wait for your money declines b) the interest rate rises and the number of years you wait for your money rises c) the interest rate declines and the number of years you wait for your money rises d) the interest rate rises and the number of years you wait for your money declines

When the demand for a plot of land rises, \- \((\mathrm{LO1})\) a) its supply will fall c) its price will fall b) its supply will rise d) its price will rise

Which statement is true? (LO1) a) All land has the same economic value. b) The most important factor affecting rent is location. c) The economic value of a plot of land is determined exclusively by the raw materials it contains. d) None of the above.
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