1. 27
Rent, Interest, and Profit

2. Chapter Objectives
The Nature of Economic Rent and How It is Determined
About the Loanable Funds Theory of Interest Rates
How Interest Rates Vary Based on Risk, Maturity, Loan Size, and Taxability
Why Economic Profits Occur, and How Profits, Along With Losses, Allocate Resources Among Alternative Uses
The Share of U.S. Earnings Received by Each of the Factors of Production

3. Economic Rent Economic Rent Perfectly Inelasticity Supply
Changes in Demand
Land Rent: A Surplus Payment
Incentive Function

4. Economic Rent The Determination of Land Rent Land Rent (Dollars)b L0
Acres of Land D4

5. Economic Rent Application: A Single Tax on Land
Henry George’s Proposal
Single Tax Movement
Criticisms
Productivity Differences and Rent Differences
Alternative Uses of Land

6. Interest Stated as a Percentage Money is Not a Resource
Loanable Funds Theory of Interest
Supply of Loanable Funds
Demand for Loanable Funds
G 27.1
O 27.1

7. Interest The Market for Loanable Funds Interest Rate (Percent)8% D F0
Quantity of Loanable Funds

8. Interest Extending the Model Financial Institutions Changes in Supply
Changes in Demand
Other Participants

9. Interest Range of Interest Rates Pure Rate of Interest Risk Maturity
Loan Size
Taxability
Pure Rate of Interest

10. Interest Role of the Interest Rate Application: Usury Laws
Interest and Total Output
Interest and the Allocation of Capital
Interest and R&D Spending
Nominal and Real Interest Rates
Application: Usury Laws
Nonmarket Rationing
Gainers and Losers
Inefficiency
O 27.2

11. Interest Short-Term Nominal Interest Rates Selected Nations, 2005
GLOBAL PERSPECTIVE
Mexico
Iceland
New Zealand
Hungary
Australia
United Kingdom
South Korea
United States
Canada
Sweden
Japan
9.5
9.2
7.1
6.8
5.7
4.7
3.6
3.5
2.8
1.7
0.0
Source: Organization for Economic Development and Cooperation

12. Economic Profit Explicit Costs Implicit Costs Economic or Pure Profit
Role of the Entrepreneur
Normal Profit

13. Economic Profit Sources of Economic Profit Static Economy
Risk and Profit
Insurable Risks
Uninsurable Risks
Changes in General Economic Environment
Changes in the Structure of the Economy
Changes in Government Policy

14. Economic Profit Innovations and Profit Monopoly and Profit
Functions of Profit
Profit and Total Output
Profit and Resource Allocation
Income Shares

15. Determining the Price of Credit
Last
Word
Effective Interest Rates Can Be Deceiving
Simple Interest Calculation
Discounting a Loan
Effects of Compounding
Truth in Lending Act 1968
Truth in Savings Act 1991
Predatory Lender Protections
Fees and Teaser Rates
Let the Borrower Beware

16. Key Terms economic rent incentive function single-tax movement
loanable funds theory of interest
pure rate of interest
nominal interest rate
real interest rate
usury laws
explicit costs
implicit costs
economic or pure profit
normal profit
static economy
insurable risks
uninsurable risks

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Government
And Market
Failure
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