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Outline TWO circumstances under which a factor of production can earn Economic Rent - Leaving Cert Economics - Question 6 - 2007
Question 6
Outline TWO circumstances under which a factor of production can earn Economic Rent. (i) (ii)
Worked Solution & Example Answer:Outline TWO circumstances under which a factor of production can earn Economic Rent - Leaving Cert Economics - Question 6 - 2007
Step 1
Circumstances under which a factor of production can earn Economic Rent (i)
Answer
- Shortage in the supply of any factor of production: When there is a shortage of land or labor, the price for these factors tends to increase. For example, if there is a limited number of skilled workers available in a particular sector, the wages for these workers may rise due to the high demand compared to the supply.
Step 2
Circumstances under which a factor of production can earn Economic Rent (ii)
Answer
- Possession of a rare skill or talent: If an individual possesses a unique skill or talent that is in great demand, such as a professional athlete or a renowned artist, they can command higher fees for their services. This additional income can be considered economic rent because it exceeds what would be necessary to keep them engaged in that line of work.