Economic Rent
The amount of money received by the owner of a production factor for having rented out the same is known as economic rent. The production factors may include labor, materials, capital and land. Such production factors may be involved in production process to sustain supply. It is the difference between the minimum and maximum amount of money that the owner of a particular asset is eligible to receive. The person who receives is termed as renter. It is different from other sorts of passive income because it has the effects of public revenue and tax policy within itself. The economic rent collected by the government for public finance is less adverse than production or consumption taxes. The economic rent of a production factor depends on the elasticity of supply of the particular good or service. If the supply elasticity is neutral by being neither elastic nor inelastic, the supply curve soars high and the income is split between economic rent and opportunity cost. If the supply elasticity is inelastic the supply is vertical and the income would contain rent. If the supply elasticity is elastic, the supply would be horizontal and the income would contain opportunity cost. Economic Rent and Transfer Earnings Transfer Earnings is the minimum payment done to prevent a production factor to move into different utility. It refers to the satisfaction that a worker has in his compensation amount. If he is dissatisfied, he would seek another job. If the minimum rent of a property is x and the actually rented amount is y, then the economic rent is y-x. Transfer earning refers to the wages that are possible in an alternate occupation. Economic Rent and Opportunity Cost Opportunity cost is a type of economic rent which involves political barriers to create and privatize rents. A person may seek entrance in a particular guild through a big training and education investment thus fulfilling the criteria to become a member in the desired guild. In a competitive situation, being a member of the guild would be advantageous compared to the investment made. Those who do not find it possible, try to enter other guilds. An artificial scarcity is created in the members of the guild through the political restrictions. Examples of Rent A celebrated sportsperson like a star baseball pitcher may have high marginal revenue value while a servant or a dishwasher may have low marginal revenue value. This article has been compiled by John J Neilson, a online Homework-Help provider. |
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