DeVry University, Chicago

ECON ECON312

Chapter 16

1)What determines the economic rent for land? Explain from a supply and demand perspective.

2. Assume that the quantity of a certain type of farmland is 400,000 acres and the demand for this land is that given in the table below.

Pure land rent, Land demanded,

       per acre                   acres        

$500       100,000

400 200,000

300 300,000

200 400,000

100 500,000

50   600,000

1. 1. What will be the economic rent and how much land will be rented?
   2. If the productivity of the land increases such that 200,000 more acres are demanded at each price, what will the economic rent be and how much land will be supplied?
   3. Given the new demand schedule in (b), if landowners were taxed at a rate of $200 per acre for their land, what would be the economic rent on this land after taxes and how many acres would be rented?

3.  Why is money not an economic resource? If it is not productive, then why do businesses want to obtain or “buy” it?

4.  Briefly explain the loanable funds theory of interest rate determination.

5. What factors might cause the interest rates to differ? Explain.

6. Economists often speak as if there is a single interest rate when in fact there are many interest rates. What factors explain the differences in these interest rates?

7. What is the pure rate of interest?

8. Distinguish between the nominal and real rates of interest using an example.