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Transfer earnings – the payment which is necessary to keep a factor of production in its present
use/employment, (hence preventing it from transferring to another use.) Transfer earnings are
determined by what a factor of production could have earned in its next best alternative employment –
thus it?s the opportunity cost of putting or keeping a factor of production in its present use.
Economic rent is the payment made to a factor of production over and above that which is necessary to
keep it in its current use. Take an example of a doctor who is earning Ksh. 40,000 per month in the
private sector; if the same doctor would be paid Ksh. 30,000 per month in the public sector and assuming
all other working conditions of service are the same, transfer earnings would be Kshs. 30,000 per month,
as this is the minimum amount of payment necessary to keep the doctor in the present (private) sector.
The doctor is then earning an economic rent of Kshs. 10,000 that is (40,000 – 30,000) per month
Wilfykil answered the question on February 6, 2019 at 09:46
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