Chapter 30 - rent, interest, and profit. After studying this chapter you will be able to understand: What is land? Economic rent, are prices high because rents are high, or are rents high because prices are high? What is capital? How is the interest rate determined? The net productivity of capital, the capitalization of assets, the present value of future income, how are profits determined? Theories of profit. | Chapter 30 Rent, Interest, and Profit 30-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives What is land? Economic rent Are prices high because rents are high, or are rents high because prices are high? What is capital? How is the interest rate determined? The net productivity of capital The capitalization of assets The present value of future income How are profits determined? Theories of profit 30-2 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What Is Rent? What is land? Land is a resource or a factor of production The owner of land is paid rent for allowing its use in the production process The amount of rent paid for a piece of land is based on the supply of and the demand for land 30-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What Is Land? Land is land How land is used depends on its location, its fertility, and whether it possesses any valuable minerals Sometimes we confuse land with what is built on it Land with an apartment building on it will rent for more than a vacant lot However in economic terms we pay rent on the land itself 30-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. How Does One Piece of Land Differ From Another? A plot of land may have a few alternative uses If it is used at all, it will be used by the highest bidder – the one willing to pay the most for it The basic way one piece of land differs from another is location An acre of land in the middle of a desert is worth a lot less than an acre of land in a metropolitan area 30-5 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. How Is the Supply of Land Arrived at? In economics we say the supply of land is fixed We can make more efficient use of land We represent the supply of land as a vertical line 30-6 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. How Is the Demand for Land Derived? The demand for land, like the . | Chapter 30 Rent, Interest, and Profit 30-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives What is land? Economic rent Are prices high because rents are high, or are rents high because prices are high? What is capital? How is the interest rate determined? The net productivity of capital The capitalization of assets The present value of future income How are profits determined? Theories of profit 30-2 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What Is Rent? What is land? Land is a resource or a factor of production The owner of land is paid rent for allowing its use in the production process The amount of rent paid for a piece of land is based on the supply of and the demand for land 30-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What Is Land? Land is land How land is used depends on its location, its fertility, and whether it possesses any valuable minerals Sometimes we confuse land .
