Rent, Wage, Interest, Profit (as payments for factors of production)

Definition

Rent refers to payments made for using land or other natural resources. Wage represents compensation paid for labor services. Interest denotes payment made for borrowing money or using financial capital. Profit signifies the residual income earned by entrepreneurs after deducting all costs from revenue.

Analogy

Think of these payments as slices from a pie. Rent takes a slice because land is used, wage takes a slice for labor services, interest takes a slice for using financial capital, and profit is the remaining slice that goes to the entrepreneur.

Related terms

Marginal Cost: Marginal cost refers to the additional cost incurred when producing one more unit of a good or service.

Marginal Revenue: Marginal revenue represents the additional revenue earned from selling one more unit of a good or service.

Production Possibilities Frontier (PPF): PPF illustrates the maximum combination of goods and services an economy can produce given its resources and technology.