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Usagi
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| Posted: 13 Dec 2011 at 01:31 | IP Logged
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Does anyone please help me to understand what is the economic rent and inelastic in this question????
Bisk 50-62 123
Under what circumstances is the complete purchase price of natural resources deemed economic rent?
a Completely elastic supply
b Fixed and limited supply
c Legislated ceiling price
d Legislated floor price
The answer is b
When there is a completely inelastic supply of a resource, no increase in price will increase supply and all of the purchase price is deemed economic rent or surplus. In other words, no part of the price provides incentive to increase supply.
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TaxProfMom
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| Posted: 13 Dec 2011 at 20:38 | IP Logged
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Economic rent the profit that exceeds "normal" profit. Normal profit is the
profit that can be expected from economic activity when there is perfect
competition and free entry in and out of the market. Think of the trading
of commodities - how there's very little spread because it is "traded"
away. That is because the trading is nearly perfect, there are no
monopolies, no barriers to entry.
In commodities then there is no economic rent - just "normal" profit.
What is the complete opposite? When the purchase price is all economic
rent. The only way that can happen is when the producer is a price-
setter, because there is fixed supply.
Hope that helps.
__________________
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Usagi
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| Posted: 14 Dec 2011 at 02:02 | IP Logged
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Dear Tax Proof Mom,
Thank you now I got it. Thank you for your help!
Usagi
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Topic: BEC-Economic rent
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