Authors libby rittenberg 721

of land is zero. At a price of zero, there is still one acre of land; quantity is
unaffected by price. If the price were to rise, there would still be only one
acre in the parcel. That means that the price of the parcel exceeds the
minimum price—zero—at which the land would be available. The amount
by which any price exceeds the minimum price necessary to make a
resource available is called economic rent.
The concept of economic rent can be applied to any factor of production
that is in fixed supply above a certain price. In this sense, much of the
salary received by Brad Pitt constitutes economic rent. At a low enough
salary, he might choose to leave the entertainment industry. How low
would depend on what he could earn in a best alternative occupation. If he
earns $30 million per year now but could earn $100,000 in a best
alternative occupation, then $29.9 million of his salary is economic rent.
Most of his current earnings are in the form of economic rent, because his
salary substantially exceeds the minimum price necessary to keep him
supplying his resources to current purposes.

KEY TAKEAWAYS


Natural resources are either exhaustible or renewable.



The demand for the services of a natural resource in any period is
given by the marginal revenue product of those services.



Owners of natural resources have an incentive to take into account
the current price, the expected future demand for them, and the

interest rate when making choices about resource supply.



The services of a renewable natural resource may be consumed at
levels that are below or greater than the carrying capacity of the
resource.

Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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