Asked by Janice Walker on Jun 03, 2024
Verified
Why doesn't the marginal worker hired earn economic rent in a competitive labor market?
A) His reservation wage is less than the wage.
B) His reservation wage is greater than the wage.
C) His reservation wage is equal to the wage.
D) He is paid a wage that is lower than the others.
Economic Rent
The excess payment made to a factor of production over and above what is needed to keep it in its current use, often due to unique circumstances.
Marginal Worker
An individual whose employment status is unstable or insecure, often at the fringes of the labor market.
Reservation Wage
The minimum wage at which an individual would be willing to accept for a particular job, below which they would choose not to work.
- Identify circumstances under which workers do and do not earn economic rent in different market structures.
Verified Answer
AN
Andrew NorcrossJun 04, 2024
Final Answer :
C
Explanation :
In a competitive labor market, the marginal worker's reservation wage—the minimum wage they are willing to accept for their labor—is equal to the wage they are paid. This means they are earning exactly what they believe their labor is worth, leaving no room for economic rent, which would be additional value above their reservation wage.
Learning Objectives
- Identify circumstances under which workers do and do not earn economic rent in different market structures.