economic rent

(noun)

The portion of income paid to a factor of production in excess of its opportunity cost.

Related Terms

Examples of economic rent in the following topics:

  • Resource Control

    • In other words, resource control allows the controller to charge economic rent.

  • Difference Between Economic and Accounting Profit

    • However, if the firm could have made $50,000 by renting its land and capital, its economic profit would be a loss of $10,000 ($100,000 in revenue - $60,000 in explicit costs - $50,000 in opportunity costs).
    • The biggest difference between accounting and economic profit is that economic profit reflects explicit and implicit costs, while accounting profit considers only explicit costs.
    • Wages paid to workers, rent paid to a landowner, and material costs paid to a supplier are all examples of explicit costs.
    • These consist of the explicit costs a firm has to maintain production (for example, wages, rent, and material costs).
    • The biggest difference between economic and accounting profit is that economic profit takes implicit, or opportunity, costs into consideration.

  • Public Choice: Median Voters and Inefficient Voting Outcomes

    • Public choice may not lead to an economically efficient outcomes due to who votes, why they vote, and in what system they vote.
    • Voting theory is a subfield of economics.
    • Public choice is described as "the use of economic tools to deal with traditional problems of political science. " In microeconomics, public choice analyses collective decision making and studies economic models of political processes including rent-seeking, elections, legislatures, and voting behavior.

  • Sources and Determinants of Profit

    • In one year, the firm earns a total revenue of $50,000, while spending $15,000 on production (explicit costs) and having $10,000 in foregone wages, rent, and interest (opportunity costs).
    • Consequently, the firm earns $25,000 in economic profit.
    • Economic profits may be positive, zero, or negative.
    • In the short run, a firm can make an economic profit.
    • An economic profit of zero is also known as a normal profit.

  • Price Ceilings

    • An example of a price ceiling is rent control.
    • These regulations require a more gradual increase in rent prices than what the market may demand.
    • Without rent control, there could be situations where the demand for housing in an area could cause rent prices to make a substantial jump.
    • Unable to afford the new, significantly higher rent, a majority of the neighborhood's tenants may be forced to move out of the neighborhood.
    • Rent controls limit the possibility of tenant displacement by minimizing the amount by which rent can be increased.

  • Capital and Technology

    • Firms may buy, rent, or lease infrastructure and tools in the capital market, but even if the firm owns these factors of production, the opportunity cost of using this capital is the foregone rent that the firm could receive if it rented the capital to somebody else rather than using it for production.

  • Types of Costs

    • In economics, the total cost (TC) is the total economic cost of production.
    • An example of a fixed cost would be the cost of renting a warehouse for a specific lease period.
    • The economic cost of a decision that a firm makes depends on the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen.
    • Economic cost is the sum of all the variable and fixed costs (also called accounting cost) plus opportunity costs.

  • Individuals Face Opportunity Costs

    • Individuals face opportunity costs in both economic and non-economic decisions.
    • As economic actors, individuals face opportunity costs as well.
    • You could have chosen to spend your money on books or rent or a spring break trip; whichever one of those options is most valuable to you (beside purchasing a new computer) is the opportunity cost.
    • Such logic applies for every economic decision: purchasing one good means that an individual has chosen to spend resources one way instead of another.
    • Opportunity costs are an important consideration for economists and business people, but are faced by individuals even when they are not making classically economic decisions.

  • Disposable Income

    • It is total personal income after subtracting taxes and typical expenses (such as rent or mortgage, utilities, insurance, medical fees, transportation, property maintenance, child support, food and sundries, etc.) needed to maintain a certain standard of living.

  • Other Approaches to Calculating GDP

    • The income approach evaluates GDP from the perspective of the final income to economic participants.
    • The income approach unlike the expenditure approach, which sums the spending on final goods and services across economic agents (consumers, businesses and the government), evaluates GDP from the perspective of the final income to economic participants.
    • This method measures GDP by adding incomes that firms pay households for factors of production they hire- wages for labor, interest for capital, rent for land, and profits for entrepreneurship.
    • GDP is measured over consecutive periods to enable policymakers and economic agents to evaluate the state of the economy to set expectations and make decisions.