transfer earnings and economic rent (add to labour markets) Flashcards
Economic rent
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.
Transfer earnings
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