Why is land rent a “surplus payment” from the perspective of economists?
What will be an ideal response?
Economic rent is the price paid for the use of land or natural resources whose supply is perfectly inelastic. The supply of land is perfectly inelastic because it is virtually fixed in the quantity available. Supply has no influence in determining economic rent. Demand is the active determinant of economic rent. As demand increases or decreases, economic rent will increase or decrease given the perfectly inelastic supply of land. Economic rent serves no incentive function given the fixed supply of land. It is not necessary to increase economic rent to bring forth more quantity, as is the case with other resources. For this reason, economists consider economic rent to be a surplus payment.
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In order for a Pigouvian subsidy to be efficient, the amount it costs the government to implement the subsidy must be less than the economic value of the additional externality benefits created by the subsidy.
Answer the following statement true (T) or false (F)
________ would be the source of a "real" business cycle
A) Unanticipated changes in monetary policy B) Anticipated changes in monetary policy C) Technology shocks D) all of the above
In 1970s the federal government imposed price controls on natural gas. Which of the following statements is true?
A) These price controls caused a chronic excess supply of natural gas. B) Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium. C) Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium. D) This episode of price controls was unusual, because it resulted in no deadweight loss to society.
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:
A) increases marginal cost. B) decreases marginal cost. C) increases marginal revenue. D) decreases marginal revenue. E) none of the above