Question : Which of the following statements are correct?
Option 1: Many workers will work for less than their reservation wages.
Option 2: The reservation wage is the maximum amount any firm will pay for a worker.
Option 3: Economic rent is the difference between the market wage and the reservation.
Option 4: Economic rent is the amount one must pay to enter a desirable labour market.
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Correct Answer: Economic rent is the difference between the market wage and the reservation.
Solution : The correct answer is Economic rent is the difference between the market wage and the reservation.
The discrepancy between the reservation wage and the actual market wage is known as economic rent. It is a payment made to a production factor that is above and beyond what the owner had anticipated. Consequently, if a person's reservation wage is less than their actual wage, they will receive more rent.
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