Authors libby rittenberg 727

Markets for natural resources are distinguished according to whether the
resources are exhaustible or renewable. Owners of natural resources have
an incentive to consider future as well as present demands for these
resources. Land, when it has a vertical supply curve, generates a return
that consists entirely of rent. In general, economic rent is return to a
resource in excess of the minimum price necessary to make that resource
available.

CONCEPT PROBLEMS
1. The charging of interest rates is often viewed with contempt. Do
interest rates serve any useful purpose?
2. How does an increase in interest rates affect the present value of a
future payment?
3. How does an increase in the size of a future payment affect the
present value of the future payment?
4. Two payments of $1,000 are to be made. One of them will be paid
one year from today and the other will be paid two years from today.
Which has the greater present value? Why?
5. The essay on the viatical settlements industry suggests that investors
pay only 80% of the face value of a life insurance policy that is
expected to be paid off in six months. Why? Would it not be fairer if
investors paid the full value?
6. How would each of the following events affect the demand curve
for capital?
1. A prospective cut in taxes imposed on business firms
2. A reduction in the price of labor
3. An improvement in technology that increases capital’s
marginal product
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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