Economic Rent
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Economic rent: what you get over and above transfer earning.
Transfer earning: the next best paid job
Rent of ability: special talent/ability that earns you income much greater than the average
When there is more demand than supply of labour, the wages will always be increasing.
Case Study Example of Economic Rent
1. Firm commences with a worker and pays him $180
2. The
firm wants to expand. It must pay $200 to the workers in order to
attract them. Both the new and the original workers get $200. The economic rent for the original workers is $20
3. The firm wants to expand again and must now pay $220 to attract more workers. The newer workers and the 1st and 2nd groups of workers will all receive $220. The economic rent for the original worker is now $40, and the economic rent for the 2nd batch of workers is $20
You decide what pays the most (e.g. $250) and then if you can't have it, you take the next-best-paid job (e.g. $225). The economic rent is the difference (e.g. $25)
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by: Admin
Total views: 565
Word Count: 653
Date: Sun, 21 May 2006 Time: 12:00 AM
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