Define pure economic rent. a. Show that an increase in the supply of a rent earning factor
Question:
a. Show that an increase in the supply of a rent earning factor will depress its rent and lower the prices of the goods that use it.
b. Explain the following statement from rent theory: "It is not true that the price of corn is high because the price of corn land is high. Rather, the reverse is closer to the truth: the price of corn land is high because the price of corn is high." Illustrate with a diagram.
c. Consider the quotation in b. Why is this correct for the market as a whole but incorrect for the individual farmer? Explain the fallacy of composition that is at work here.
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a Inelastic supply means that the price is determined where demand matches that supply ...View the full answer
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