Define the term rent. Explain why confiscation of rents would cause more than a simple transfer of income from resource owners to the government.

What will be an ideal response?

Rent is any payment made to a resource in excess of the minimum amount needed to call it into existence; it is the producer's surplus earned by the resource owner. If the government confiscated all rents, certainly income would be transferred from resource owners to the government. In this situation, however, the resource owner will be indifferent regarding to whom he should supply the resource-the owner will receive the same payment regardless of the demander. Thus there is no guarantee that the resource will be supplied to those demanders who value it the most. Without the price system to guide the resource owners, resources will be misallocated and social loss will occur.