Transfer earnings and economic rent

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Economics

4 Terms

1
What are transfer earnings?
The amount a FOP could earn in its best alternative occupation

→ It is the minimum payment to keep a FOP in its present use

→ Opportunity cost of performing the current job
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2
What is economic rent?
A surplus paid to a FOP above what is required to keep it in its current occupation
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3
How do you calculate economic rent?
Total earnings - transfer earnings
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4
1st worker employed will earn significantly more economic rent than the last worker
1st worker employed will earn significantly more economic rent than the last worker
IF WAGE INELASTIC:

→ More economic rent enjoyed

→ Earn significantly more than next best job

→ If W(↓) → workers still prepared to keep working as they earn significant ER

\
IF WAGE ELASTIC:

→ Only earning slightly more than next best job

→ If W(↓) → workers would supply labour in another industry

→ To maximise wage anad utility

\
Depends on person: may work for non-pecuniary reasons
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