Consider two resource markets,A and B,where the demand curves for the resources slope downward.The supply curve of resource A is horizontal,and the supply curve of resource B is vertical.In market A,the equilibrium price is $6,and the equilibrium quantity is 100 units.In market B,the equilibrium price is $20,and the equilibrium quantity is 30 units.Which of the following is true?
A)All of the resource earnings in market A are opportunity costs.
B)All of the resource earnings in both markets are opportunity costs.
C)All of the resource earnings in market B are opportunity costs.
D)None of the resource earnings in either market are an opportunity cost.
E)None of the resource earnings in either market are economic rent.

Question

Quizplus · Accepted Answer

In market A, the supply curve is horizontal which means that the resource is perfectly elastic, and the equilibrium price of $6 is determined by the demand curve only. Therefore, all the resource earnings in market A are opportunity costs since resource owners are willing to supply any quantity at the going market price, and they could have earned the same amount of money in another industry. In market B, the supply curve is vertical which means that the resource is perfectly inelastic, and the equilibrium price of $20 is determined by the intersection of the demand curve and the fixed supply. Therefore, some of the resource earnings in market B could be economic rent, which is the surplus over and above the opportunity cost of production, but it depends on the shape and position of the demand curve. Without more information, however, we cannot determine the presence or absence of economic rent in market B.

Consider Two Resource Markets,A and B,where the Demand Curves for the Resources