Reading Economic Rent

There are many different definitions of economic rent. It occurs primarily with resources that have a fixed supply. Economic rent is the revenue that can be earned from the land or other natural resource for which there is a fixed supply.
Price

Quantity

Notice the vertical supply curve, at a fixed level of output, price is solely defined by the demand curve.  Land particularly has economic rent because of the fact that price has much to do with location. Economic rent refers to extra money that a person makes over the amount they expect. Thus, prime locations can have a great deal of economic rent.

Economic rent also occurs in the labor market. However, the level of economic rent is determined by how much that worker is able to earn at another job (called transfer earnings).

Quantity of Labor on the x-axis, Wages or price of labor on the y-axis, a downward sloping demand curve and upward sloping supply curve equilibrium is the quantity of labor hired the distance under supply curve to equilibrium is transfer earnings the distance above supply curve to wage rate is economic rent

In terms of labor, transfer earnings are the minimum reward necessary to prevent a worker from transferring to their next best source of employment.

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ACC Principles of Microeconomics by Lumen Learning is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.