Economic rent

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siidheart

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Why is there no economic rent when the supply curve is prefectly elastic? Is it because the supply can be changed, and so the factors of production have easy jobs, and hence there is no opportunity cost aka the economic rent?
Supply of land is considered inelastic because if prices increase the supply cannot be increased. it is limited. But what if prices of land go down? Which never happens. Take the case of oil. If prices of oil go down (possible), and the extraction costs rise, it might not be viable to extract, leading to a shortfall in supply of oil. But it was mentioned that supply of oil, gold, etc. is inelastic? How? The resources are limited so their supply cannot be increased, but it can be decreased???
 
Hi there,
The answer to the first part of your question is that for there to be economic rent there has to be some increase in a price of a factor of production in order to encourage a supply of a grater quantity of that factor. In the case of perfectly elastic supply curve, price elasticity of supply is infinite and therefore no matter what quantity is suppied price will NEVER increase. As there is never a price increase there is never any economic rent. Just one point economic rent is not the opportunuty cost, economic rent is the difference between what the owner of a factor of production receives and the opportunity cost of the factor of production.
Even though resouces such as oil and gold are finite their supply can be increased and decreased.
Hope this helps. If so you can get me on [email protected] or follow me @freecfa
 
Economic rent is the amount paid to a supplier above the amount that would be paid for their next-best use. Professional athletes, for example, are paid substantial economic rent (their next best use being something that pays them a boatload less than they receive as an athlete), whereas menial labor is paid little to no economic rent.
Imagine that Bob is the only supplier of a particular skill set: the world’s only left-handed stenographer fluent in Farsi, Inuit, and Korean. He’s being paid $11 per hour, and his next best use would pay him $10/hour. Bob’s not going anywhere: the supply curve is perfectly inelastic. His employer drops his wage to $10.50/hour, and Bob remains: still perfectly inelastic supply, $10.25/hour, $10.15/hour, $10.08/hour. Bob doesn’t budge. Until his wage hits $10.00 per hour.
BAM!
His supply curve is now perfectly elastic: if his wage drops even one penny per hour, he’s gone! Outta there! Sayonara! Good riddance!
And at $10.00 per hour, he’s earning zero economic rent.
QED
 
S2000magician wrote:
Economic rent is the amount paid to a supplier above the amount that would be paid for their next-best use. Professional athletes, for example, are paid substantial economic rent (their next best use being something that pays them a boatload less than they receive as an athlete), whereas menial labor is paid little to no economic rent.
Imagine that Bob is the only supplier of a particular skill set: the world’s only left-handed stenographer fluent in Farsi, Inuit, and Korean. He’s being paid $11 per hour, and his next best use would pay him $10/hour. Bob’s not going anywhere: the supply curve is perfectly inelastic. His employer drops his wage to $10.50/hour, and Bob remains: still perfectly inelastic supply, $10.25/hour, $10.15/hour, $10.08/hour. Bob doesn’t budge. Until his wage hits $10.00 per hour.
BAM!
His supply curve is now perfectly elastic: if his wage drops even one penny per hour, he’s gone! Outta there! Sayonara! Good riddance!
And at $10.00 per hour, he’s earning zero economic rent.
QED
Click to expand...
Wow! got “how elasticity is linked to economic rent” like will never forget!! Thn„ err kansha
 
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