Rent, Interest, and Profit

1. Rent, Interest, and Profit

2. Rent • Price paid for land and other natural resources • Perfectly inelastic supply

3. DETERMINATION OF LAND RENT Changes in the demand for land... S Inelastic Supply... R Q

4. DETERMINATION OF LAND RENT Changes in the demand for land... S Inelastic Supply... combines with demand... R D1 Q Acres of Land

5. DETERMINATION OF LAND RENT Changes in the demand for land... S Inelastic Supply... combines with demand... R to determine rent R1 D1 Q Acres of Land

6. DETERMINATION OF LAND RENT Changes in the demand for land... S If demand decreases... rent decreases. R R1 R2 D1 D2 Q Acres of Land

7. DETERMINATION OF LAND RENT Changes in the demand for land... S If demand decreases... rent decreases. ...and decreases R R1 R2 D1 R3 D2 D3 Q Acres of Land

8. DETERMINATION OF LAND RENT Changes in the demand for land... S If demand decreases... rent decreases. ...and decreases ...and decreases ...and decreases R R1 R2 D1 R3 D2 D3 Q D4 Acres of Land

9. 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 R R1 R2 D1 R3 D2 D3 Q D4 Acres of Land

10. LAND RENT Productivity Differences(Location, Location, Location)

11. INTEREST • The Price Paid for Capital • It is the payment to use money • Money is not a Resource Rate Determination...

12. LOANABLE FUNDS THEORY OF INTEREST S I i = 8% D F0 Q of LF

13. INTEREST RATES • Role of the Interest Rate • Growth • Allocation of Capital • R&D Spending • Nominal and Real Interest Rates • Nominal – Inflation = Real

14. Economic Profit • Payment to entrepreneurs • Functions of economic profit

15. Share of Income • Wages receive 70-80% • The rest is rent, interest, & profit