Question

Suppose that businesses buy a total of $170 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $88 billion in wages, $24 billion in rent, and $34 billion in interest, how much are households paid for providing entrepreneurial ability?

Answer 1

Answer:

The businesses paid $24 billion in entrepreneurial ability. This value comes from subtracting the wages, rent and interest from the total amount of businesses' purchase. In this case 170 - 88 - 24 - 34 = 24.

Explanation:

This value can be understood as goodwill that households are recognized for their ideas and can bring a future return to the businesses. The businesses had assessed the future stream of cash the household could bring and, basing our guess on businesses behaving rationally, and they found that 170 was an amount that will recognize these future opportunities