transfer earnings and economic rent (add to labour markets)

Question 1

Economic rent

Answer 1

Economic Rent refers to income earned from a factor of production which is greater than the minimum necessary to bring the factor of production into operation. Suppose a football player would be willing to work for £200 a week. If the football player got paid £1,000 a week. His economic rent is £800 a week. Economic rent is the area between the supply curve and the wage rate. The supply curve indicates the minimum wage people are prepared to work at.

Question 2

Transfer earnings

Answer 2

Transfer Earnings are defined as the minimum payment necessary to prevent a factor of production moving to a different use. A worker may have a transfer earning of £150 a week. If he was paid less, he wouldn’t want to work in that occupation. For example, a worker may feel he is better off claiming unemployment benefits that working for less than £150 a week