Jeremy Doncouse ECON202 Chapter 27 Key Questions 11/8/2008 2) Economic rent, as viewed by society, is not a cost. Society would have the same amount of land with or without the payment of economic rent. From society's perspective, economic rent is a surplus payment above that needed to gain the use of a resource. But individual firms do need to pay to attract land resources away from alternative uses. For firms, rental payments are a cost. Land rent performs no incentive function for the overall economy because the total supply of land is fixed. Whether rent is $10k, $500, $1, or $0 per acre, the same amount of land is available to society for use in production. 6) The supply of loanable funds is upsloping because at higher interest rates, households will defer more of their present consumption (save more), making more funds available for lending. Demand is downsloping indicates that businesses will borrow more at lower interest rates than at higher rates. The equilibrium interest rate is where the quantities of loanable funds lent and borrowed are equal. Factors that might cause supply, demand, or equilibrium to change:
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