Post on 14-Jan-2016
description
14 - 1
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Rent, Interest, and Profit
14 - 2
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Rent
• Price paid for land and other natural resources
• Perfectly inelastic supply
14 - 3
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
RS
DETERMINATION OF LAND RENTChanges in the demand for land...
Inelastic Supply...
Q
14 - 4
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Acres of Land
S
DETERMINATION OF LAND RENTChanges in the demand for land...
Inelastic Supply...combines withdemand...
D1
Q
R
14 - 5
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
R1
Acres of Land
S
DETERMINATION OF LAND RENTChanges in the demand for land...
Inelastic Supply...combines withdemand...
D1
to determine rent
Q
R
14 - 6
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Acres of Land
R1
S
D2
D1R2
If demand decreases...
DETERMINATION OF LAND RENTChanges in the demand for land...
rent decreases.
Q
R
14 - 7
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
D3
Acres of Land
R1
S
D2
D1R2
R3
If demand decreases...rent decreases. ...and decreases
DETERMINATION OF LAND RENTChanges in the demand for land...
Q
R
14 - 8
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
D3
Acres of Land
R1
S
D4
D2
D1R2
R3
If demand decreases...rent decreases. ...and decreases
DETERMINATION OF LAND RENTChanges in the demand for land...
...and decreases ...and decreases
Q
R
14 - 9
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
D3
Acres of Land
R1
S
D4
D2
D1R2
R3
DETERMINATION OF LAND RENTChanges in the demand for land...
If demand is so lowthat there is no rentdetermined, land issaid to be a free good,commanding no rent.
Q
R
14 - 10
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Productivity Differences(Location, Location, Location)
LAND RENT
14 - 11
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
INTERESTThe Price Paid for Capital•It is the payment to use money
•Money is not a Resource
Rate Determination...
14 - 12
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
I
Q of LF
LOANABLE FUNDSTHEORY OF INTEREST
i = 8%
D
F0
S
14 - 13
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
INTEREST RATES
Role of the Interest Rate•Growth•Allocation of Capital•R&D Spending
Nominal and Real Interest RatesNominal – Inflation = Real
14 - 14
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Economic Profit
• Payment to entrepreneurs
• Functions of economic profit
14 - 15
Economic Rent
Determination of Land Rent
Loanable Funds Theory of Interest
Range of Interest Rates
Economic Profit
Share of Income
• Wages receive 70-80%• The rest is rent, interest, &
profit