AP Micro Rent, Interest, Profit
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AP Micro Rent, Interest, Profit Presentation Transcript

  • 1. 29
    C H A P T E R
    Rent,
    Interest,
    and Profit
  • 2. ECONOMIC RENT
    • The price paid for the use of land and other natural resources, the supply of which is fixed…graphically
  • DETERMINATION OF LAND RENT
    Changes in the demand for land...
    S
    Inelastic Supply...
    Land Rent (dollars)
    0
    Acres of Land
  • 3. DETERMINATION OF LAND RENT
    Changes in the demand for land...
    S
    Inelastic Supply...
    combines with
    demand...
    Land Rent (dollars)
    D1
    0
    Acres of Land
  • 4. DETERMINATION OF LAND RENT
    Changes in the demand for land...
    S
    Inelastic Supply...
    combines with
    demand...
    to
    determine rent
    R1
    Land Rent (dollars)
    D1
    0
    Acres of Land
  • 5. DETERMINATION OF LAND RENT
    Changes in the demand for land...
    S
    If demand decreases...
    rent decreases.
    R1
    Land Rent (dollars)
    R2
    D1
    D2
    0
    Acres of Land
  • 6. DETERMINATION OF LAND RENT
    Changes in the demand for land...
    S
    If demand decreases...
    rent decreases.
    ...and decreases
    R1
    Land Rent (dollars)
    R2
    D1
    R3
    D2
    D3
    0
    Acres of Land
  • 7. DETERMINATION OF LAND RENT
    Changes in the demand for land...
    S
    If demand decreases...
    rent decreases.
    ...and decreases
    ...and decreases
    ...and decreases
    R1
    Land Rent (dollars)
    R2
    D1
    R3
    D2
    D3
    0
    D4
    Acres of Land
  • 8. 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.
    S
    R1
    Land Rent (dollars)
    R2
    D1
    R3
    D2
    D3
    0
    D4
    Acres of Land
  • 9. INTEREST
    The Price Paid for the Use of Money
    Stated as a Percentage
    Money NOT a Resource
    Supply of Loanable Funds
    Demand for Loanable Funds
    Rate Determination...
  • 10. LOANABLE FUNDS
    THEORY OF INTEREST
    S
    i =
    8%
    Interest Rate, (percent)
    D
    F0
    Quantity of Loanable Funds
  • 11. EXTENDING THE MODEL
    Financial Institutions
    Changes in Supply
    Changes in Demand
    Other Participants
  • 12. 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
    Copyright McGraw-Hill/Irwin, 2005
    END
    BACK
  • 13. Coming Next:
    GOVERNMENT
    AND
    MARKET FAILURE
    Chapter 30