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14 - 1 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit Rent, Interest, and Profit.

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Presentation on theme: "14 - 1 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit Rent, Interest, and Profit."— Presentation transcript:

1 14 - 1 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit Rent, Interest, and Profit

2 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

3 14 - 3 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit R S DETERMINATION OF LAND RENT Changes in the demand for land... Inelastic Supply... Q

4 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 RENT Changes in the demand for land... Inelastic Supply... combines with demand... D1D1 Q R

5 14 - 5 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit R1R1 Acres of Land S DETERMINATION OF LAND RENT Changes in the demand for land... Inelastic Supply... combines with demand... D1D1 to determine rent Q R

6 14 - 6 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit Acres of Land R1R1 S D2D2 D1D1 R2R2 If demand decreases... DETERMINATION OF LAND RENT Changes in the demand for land... rent decreases. Q R

7 14 - 7 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit D3D3 Acres of Land R1R1 S D2D2 D1D1 R2R2 R3R3 If demand decreases... rent decreases....and decreases DETERMINATION OF LAND RENT Changes in the demand for land... Q R

8 14 - 8 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit D3D3 Acres of Land R1R1 S D4D4 D2D2 D1D1 R2R2 R3R3 If demand decreases... rent decreases....and decreases DETERMINATION OF LAND RENT Changes in the demand for land......and decreases Q R

9 14 - 9 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit D3D3 Acres of Land R1R1 S D4D4 D2D2 D1D1 R2R2 R3R3 DETERMINATION OF LAND RENT Changes in the demand for land... If demand is so low that there is no rent determined, land is said to be a free good, commanding no rent. Q R

10 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

11 14 - 11 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit INTEREST The Price Paid for Capital It is the payment to use money Money is not a Resource Rate Determination...

12 14 - 12 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit I Q of LF LOANABLE FUNDS THEORY OF INTEREST i = 8% D F0F0 S

13 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 Rates Nominal – Inflation = Real

14 14 - 14 Economic Rent Determination of Land Rent Loanable Funds Theory of Interest Range of Interest Rates Economic Profit Payment to entrepreneurs Functions of economic profit

15 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

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