Chapter 16 - Rent, interest, and profit. In this chapter, we will define economic rent and explore the factors that impact its value. Then we will look at the price of money, or interest rates, and how the interest rates are determined using the loanable funds theory. Along with interest rates, we will investigate present and future values of money. Lastly, we will examine the role of profits in the allocation of resources. | Chapter 16 Rent, Interest, and Profit Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. In this chapter, we will define economic rent and explore the factors that impact its value. Then we will look at the price of money, or interest rates, and how the interest rates are determined using the loanable funds theory. Along with interest rates, we will investigate present and future values of money. Lastly, we will examine the role of profits in the allocation of resources. Economic Rent Price paid for land and other natural resources Perfectly inelasticity supply Changes in demand A surplus payment LO1 Economists use the term “rent” to mean economic rent. Economic rent is the price paid for the use of land and other natural resources that are completely fixed in total supply. This fixed overall supply distinguishes rental payments from wage, interest, and profit payments. For all . | Chapter 16 Rent, Interest, and Profit Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. In this chapter, we will define economic rent and explore the factors that impact its value. Then we will look at the price of money, or interest rates, and how the interest rates are determined using the loanable funds theory. Along with interest rates, we will investigate present and future values of money. Lastly, we will examine the role of profits in the allocation of resources. Economic Rent Price paid for land and other natural resources Perfectly inelasticity supply Changes in demand A surplus payment LO1 Economists use the term “rent” to mean economic rent. Economic rent is the price paid for the use of land and other natural resources that are completely fixed in total supply. This fixed overall supply distinguishes rental payments from wage, interest, and profit payments. For all practical purposes, the supply of land is perfectly inelastic, resulting in a vertical supply curve. Because the supply of land is fixed, demand is the only active determinant of land rent. The demand for land is driven by the productivity of the land, the demand for the products produced on the land and the prices of other resources that are combined with the land. Given the fact that land has a perfectly inelastic supply, there are no incentive payments associated with land. Economists therefore consider land rents to be surplus payments that are not necessary to ensure that land is made available for economic use. No matter what rent is paid, the land will always be there. Economic Rent Land ownership: fairness vs. allocative efficiency Application: a single tax on land Henry George’s proposal Single-tax movement Criticisms LO1 LO1 Socialists have often argued that land rents are unearned incomes because the owners of land who rent it out produce nothing. However, supporters of .
