Answer to Question #60373 in Microeconomics for Bob

Question

Firefighters are highly skilled workers who are typically employed by city governments. If a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate, what happens to the economic rents earned by the firefighters?

a. increase
b. decrease
c. remain unchanged
d. public employees like firefighters cannot earn economic rents

Answer 1

b. decrease
As economic rent is the positive difference between the actual payment made for a labor to highly skilled workers and the payment level expected by them, due to its exclusivity or scarcity, it decreases when a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate.