slide1 l.
Download
Skip this Video
Download Presentation
Rent, Interest, and Profit

Loading in 2 Seconds...

play fullscreen
1 / 18

Rent, Interest, and Profit - PowerPoint PPT Presentation


  • 173 Views
  • Uploaded on

Chapter 14. Rent, Interest, and Profit. Chapter Objectives. Economic rent The loanable funds theory Interest rate variation Economic profits Distribution of U.S. earnings. 14- 2. Economic Rent. Price paid for land and other natural resources Perfectly inelasticity supply

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Rent, Interest, and Profit' - kuri


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Chapter 14

Rent, Interest, and Profit

chapter objectives
Chapter Objectives
  • Economic rent
  • The loanable funds theory
  • Interest rate variation
  • Economic profits
  • Distribution of U.S. earnings

14-2

economic rent
Economic Rent
  • Price paid for land and other natural resources
  • Perfectly inelasticity supply
  • Changes in demand
  • A surplus payment

14-3

determination of land rent
Determination of Land Rent

S

R1

D1

Land Rent (Dollars)

R2

D2

R3

D3

a

b

0

L0

Acres of Land

D4

14-4

economic rent5
Economic Rent
  • Application: a single tax on land
    • Henry George’s proposal
    • Single tax movement
    • Criticisms
  • Productivity differences
  • Alternative uses of land

14-5

interest
Interest
  • Price paid for use of money
  • Stated as a percentage
  • Money is not a resource
  • Loanable funds theory
    • Supply of loanable funds
    • Demand for loanable funds

14-6

market for loanable funds
Market For Loanable Funds

The equilibrium interest rate

S

Interest Rate (Percent)

i=

8%

D

0

F0

Quantity of Loanable Funds

14-7

loanable funds theory
Loanable Funds Theory
  • Extending the model
  • Financial institutions
  • Changes in supply
    • Household thrift
  • Changes in demand
    • Rate of return on investment
  • Other participants

14-8

time value of money
Time-Value of Money
  • Money more valuable the sooner it is obtained
    • Ability to earn interest
    • Compound interest
  • Future value
  • Present value

14-9

range of interest rates
Range of Interest Rates
  • There are many interest rates
  • Why do interest rates differ?
    • Risk
    • Maturity
    • Loan size
    • Taxability
  • Pure rate of interest

14-10

role of the interest rate
Role of the Interest Rate
  • Relationship to
    • Total output
    • Allocation of capital
    • R&D spending
  • Nominal and real rates
  • Application: Usury Laws
    • Nonmarket rationing
    • Gainers and losers
    • Inefficiency

14-11

nominal interest rates
Nominal Interest Rates

Short-Term Interest Rate, 2007

0 2 4 6 8 10

New Zealand

Hungary

Mexico

Australia

United Kingdom

United States

South Korea

Canada

Sweden

Switzerland

Japan

Source: Organization for Economic Cooperation and Development

14-12

economic profit
Economic Profit
  • Explicit costs
  • Implicit costs
  • Pure profit
  • Total revenue less explicit and implicit costs
  • Role of the entrepreneur
    • Normal profit

14-13

sources of economic profit
Sources of Economic Profit
  • Static economy
  • Risk and profit
    • Insurable and uninsurable risks
    • Changes in economic environment, structure of economy, government policy
  • Innovations and profit
  • Monopoly and profit

14-14

economic profit15
Economic Profit
  • Functions of profit
    • Profit and total output
    • Profit and resource allocation
  • Income shares
      • Labor receives 70-80%
      • Rest is rent, interest, profit

14-15

the price of credit
The Price of Credit
  • Effective interest rates
  • Discounting a loan
  • Repaying a loan in installments
  • Effects of compounding
  • Truth in Lending Act 1968
  • Truth in Savings Act 1991
  • Fees and teaser rates
  • Let the borrower beware

14-16

key terms
Key Terms
  • economic rent
  • incentive function
  • single-tax movement
  • loanable funds theory of interest
  • time-value of money
  • future value
  • present value
  • 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

14-17

next chapter preview
Next Chapter Preview…

Natural Resource

and Energy

Economics

14-18