Land & Capital - chapter 14

7/26/2019 Land & Capital - chapter 14

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Land and Capital

Chapter 14


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Main topics

Land & concept of rent

Land as a factor

Rent defined

Capital & interest

Concept of capital

Valuation

Function of interest

Applications


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Land & concept of rent

Land feature of fixed supply Deried de!and "ased on de!and for a

product that uses it as input

Rent price of land or other fixed input Rent or #pure econo!ic rent$% residual left for

oners of fixed inputs

'axin( land no distortin( effect )ffect on consu!ers% none* price constant

)ffect on landoners% none* supply constant


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Fixed Land Must +or, for

+hateer -t Can )arn

Chapter 14

Figure 14-1


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'ax on Fixed Land -s .hifted /ac, to Landoners0

ith oern!ent .,i!!in( 2ff 3ure )cono!ic

Rent

Chapter 14

Figure 14-2


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Capital and interest

Capital produced factor of production Dura"le produced (oods used to produce

other (oods

!a5or cate(ories .tructures o inentories

)6uip!ent

3roducer dura"les

Consu!er dura"les

3rices s rentals of capital (oods

3rices for purchase

Rental for use


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Capital & interest0 cont7d8

'an(i"le assets real inputs0 e9(9 land & !achines

increase productiity of other factors

Financial assets !onetary clai!s .oles !is!atch "eteen saers & inestors

-nterest rates price that a "orroer pays

for his use of the !oney :o!inal peso return on pesos inested

Real net of loss of "uyin( poer due to

inflation


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Chapter 14

Table 14-1


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3resent alue peso alue today of a strea! of

inco!e in the future

=

+

+

+

+

+

+

=

tasi

N

i

N

i

N

i

NV

t

t

...)1(...)1(1 21

2


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3resent Value of an Asset

Chapter 14

Figure 14-3


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Maxi!i;in( present alue calculate

present alue for all pro5ects0 then ran,

pro5ects


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3rofits /usiness profits% sales less costs

)cono!ic profits% earnin(s after all costs "oth !oney & i!plicit


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'heory% =se of indirect or rounda"out production

3ay!ent for for(oin( present consu!ption to increase future

consu!ption #concept of inest!ent$

Deter!ination of interest & return to capital

.upply of capital% fro! households

De!and for capital% fro! "usinesses


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-nest!ents 'oday >ield

Consu!ption 'o!orro

Chapter 14

Figure 14-4


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.hort?Run Deter!ination of

-nterest and Returns

Chapter 14

Figure 14-5

C 14


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Lon(?Run )6uili"ration of the

.upply and De!and for Capital

Chapter 14

Figure 14-6


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Applications

'axes & inflation

'echnolo(ical distur"ances

Role of technolo(ical innoations in leel ofinterest & return on capital

=ncertainty & expectations

)!pirical findin(s% returns to la"or &capital

Ch t 14


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'rends in +a(es and 3rofits in the

=nited .tates

Chapter 14

Figure 14-7


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Valedictory thou(hts

Co!petitie !ar,ets pro!ote efficiency

Capital !ar,ets "alance sain( and

inest!ent

oern!ents can reduce ine6uality


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-nputs0 3roduction0 2utputs0 and

Consu!ption For! the Circular Flo of

)cono!ic Life

Appendix 14A

Figure 14A-1

A di 14A


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)fficient Allocations Are on the

=tility?3ossi"ility Frontier

Appendix 14A

Figure 14A-2

Land & Capital - chapter 14

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