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Chapter 21: Q. 21.1LO (page 465)

Understand the concept of economic rent.

Short Answer

Expert verified

The economic sector is becoming increasingly financialized by engaging explicitly in share buy-backs asa method to maximize shareholder payments .

Step by step solution

01

Given Information

鈥楨conomic rent鈥� will be broadly defined as income derived from ownership or control over a limited asset or resource. Such income is attained with none expenditure or effort on behalf of the resource holder or in more than their cost.

02

Explanation

  • The financial sector increasingly allocates resources towards unproductive activities, charging fees and interest within the process. Land rents are exploding, leading to a housing affordability crisis in many advanced economy cities.
  • The economic sector is becoming increasingly financialized by engaging explicitly in share buy-backs as a method to maximize shareholder payments, i.e. financial rents, rather than focusing on long-term productive investment.
  • In all the other ways, sublet company types seem to become increasingly dominant in capitalist production.

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Most popular questions from this chapter

After graduation, you face a choice. One option is to work for a multinational consulting firm and earn a starting salary (benefits included) of \(40,000. The other option is to use\)5,000in savings to start your own consulting firm. You could earn an interest return of 5 percent on your savings. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your total includes \(12,000in rent, \)1,000in office supplies, \(20,000for office staff, and \)4,000in telecommunications expenses. What are your total explicit costs and total implicit costs?

Classify the following items as either financial capital or physical capital.

a. A computer server owned by an information-processing company

b. $100,000set aside in an account to purchase a computer server

c. Funds raised through a bond offer to expand plant and equipment

d. A warehouse owned by a shipping company

Reconsider Figure 21-1 and the data provided in Problem 21-19, and suppose that P2=$2,800 per acre. By how much do economic rents change when the rental rate on land rises from P1toP2 in the figure?

You expect to receive a payment of $104one year from now.

a. Your rate of discount is 4percent. What is the present value of the payment to be received?

b. Suppose that your rate of discount rises to 5percent. What is the present value of the payment to be received?

Explain the basic differences between a share of stock and a bond.
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