Transfer Earnings & Economic Rent

Question 1

What is the minimum amount a worker will be willing to work for?

Answer 1

The amount they could be earning in alternative employment

Question 2

Transfer Earnings

Answer 2

The amount a factor of production could earn at its next best alternative occupation
- the minimum amount labour must be paid to keep it in it’s present use
- the opportunity cost of performing at their current job (what is given up)

Question 3

Why is there no incentive to work in the current job when the wage is below the level of transfer earnings?

Answer 3

workers would move to an alternative employment that is higher paying

Question 4

Economic Rent

Answer 4

A surplus paid to a factor of production above what is needed to keep it in it’s current occupation
- economic rent = total earnings - transfer earnings

Question 5

How does the amount of economic rent vary along the labor supply curve?

Answer 5

The more labour we have, the less economic rent we have

Question 6

Inelastic supply of labour curve

Answer 6

• really high economic rent as their amount they would earn compared to another job is much higher
• have a greater alternative wage

Question 7

Elastic supply of labour curve

Answer 7

• really low economic rent because they get paid very low
• for the next best alternative, the increase in wages would not be that high

Question 8

Is it possible to earn negative economic rent?

Answer 8

Yes if the worker does not do the job for money