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ECONOMY

Labor, land and capital markets

14.4. Land rent
Land differs from other natural resources in that in the short term it is possible to obtain a
constant flow of production from it without reducing the available amount of said factor.
The demand curve for land services is derived from the marginal product value curve of land.
The supply of the productive factor of land is traditionally considered fixed.
The demand curves for land services and the supply curves for land intersect at point E 0 , so R
0 (page 282) is the equilibrium price of land services. Classical economists called the price R 0
“ rent ” of land.

Economic rent and fixed offer

The price that must be paid for the factor's services is higher than the minimum necessary to
ensure that it is offered, and that is why we say that the factor obtains an economic income.
A factor generates economic income when it receives an amount greater than the
minimum necessary to induce it to offer a given level of service .

14.5. Capital, returns and interest

The physical capital
Physical capital is the stock of produced goods that contributes to the production of goods
and services .
Capital goods: equipment (consumer durable goods, appliances, automobiles); structures
(factories) and stocks (clothes).
The capital stock increases through the investment process, the capital stock is usually reduced
through depreciation.
Depreciation is the reduction in the value of a machine as a result of its use and/or the
passage of time .

The rate of return on capital goods

One measure is the rate of return on capital , which shows the annual net return for each peso
invested.

Financial assets and rental prices

Individuals channel their savings through financial assets . Individuals buy stocks and bonds,
deposit their savings in financial institutions or join a pension fund that allows them to
maintain their standard of living when they retire from active life. The return on financial
assets is the interest rate.
The interest rate expresses the annual return on borrowed funds and is measured as a
percentage .
The structure of interest rates
The structure of interest rates , a whole range of interest rates depending on the risk and the
time period considered.

The nominal and real interest rate

The nominal interest rate is the interest rate expressed as the increase in the monetary
value of an investment .

The real interest rate measures the return on an investment expressed as the increase in
the amount of goods and services that can be purchased .
Real interest rate = Nominal interest rate - Inflation rate