Microeconomics Homework

Microeconomics Homework

  • Submitted By: eckobx
  • Date Submitted: 12/04/2008 6:04 PM
  • Category: Miscellaneous
  • Words: 836
  • Page: 4
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Economists use rent in a much narrower sense. Economic rent is the price paid for the use of Land and other natural resources that are completely fixed in total supply. As you will see, this fixed overall supply distinguishes rental payments from wage, interest, and profit payments. We first assume that all land is of the same grade or quality, meaning that each arable acre of land is as productive as every other acre. We assume, too, that all land has a single use, for example producing wheat. If land is a gift of nature, costs nothing to produce, and would be available even without rental payments. Socialists have long argued that all land rents are unearned incomes. They urge that land should be nationalized so that any payments for its use can be used by the government to further the well-being of the population.Interest is the price paid for the use of money. It is the price that borrowers need to pay lenders for transferring purchasing power from the present to the future. It can be thought of as the amount of money that must be paid for the use of $1 for 1 year. Interest is paid in kind, that is, money is paid for the load of money. For that reason, interest is typically stated as a percentage of the amount of money borrowed rather than as a dollar amount. It is less clumsy to sat that interest as a percentage makes comparison of the interest as a percentage makes comparison of the interest paid on loans of different amounts easier.
Households rarely lend their savings directly to businesses that are borrowing funds for investment. Instead, they place their savings in banks and other financial institutions. The banks pay interest to savers in order to attract loan able funds and in turn lend those funds to businesses. Business borrows the funds from the banks, paying them interest for the use of the money. Financial institutions profit by charging borrowers higher interest rates than the interest rates them pay savers. Both interest rates, however, are...

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