Question

1. Explain why unskilled workers earn little economic rent, while much of a NFL quarterback's salary is rent.

2. Explain why a reduction in welfare benefits for the poor and a tax increase on the wealthy would have different effects on work effort.

3. Explain the costs and benefits to union members of a strike. Does it explain why most union negotiations end without a strike?

Answer 1

1)

Economic rent is difference between the actual earning and transfer earning. Transfer earning is income from best alternative.

Hence, unskilled workers are paid minimum wage and if wage is below the minimum level, then workers would most probably migrate to another alternative. Hence, there is very less rent.

NFL is paid surplus salary, hence huge rent is generated over here. Actual earning is greater than transfer earning.

Hence, rent is excess of actual earning over the transfer earning.