Changes

Economists have their own terminology which, as you’ve seen in this course, is often different from common usage.  In economics, the basic terms of wages, interest, rent and profit are all redefined.  Ughhhhhh!  Here we go:

Economists have their own terminology which, as you’ve seen in this course, is often different from common usage.  In economics, the basic terms of wages, interest, rent and profit are all redefined.  Ughhhhhh!  Here we go:

“Economic wages” are payments for the worker’s opportunity cost of time.  When Charles earns $7 per hour working for a dry cleaners, those wages are payments for his opportunity cost of time.  He could be working someone else making money.  The market rate of $7 implies that his time is worth that much at this stage in his life.

“[[Economic wages]]” are payments for the worker’s opportunity cost of time.  When Charles earns $7 per hour working for a dry cleaners, those wages are payments for his opportunity cost of time.  He could be working someone else making money.  The market rate of $7 implies that his time is worth that much at this stage in his life.

“Economic rent” is the payment for a perfectly inelastic input.  If increasing the payment does not increase the supply of the input, then this is a “rent”.  It is similar, but not identical, to rent paid on scarce land.  Increasing the rent does not increase the supply the land.  The supply is fixed.  Don’t worry if you don’t understand this yet.  We’ll spend more time on it below.

“[[Economic rent]]” is the payment for a perfectly inelastic input.  If increasing the payment does not increase the supply of the input, then this is a “rent”.  It is similar, but not identical, to rent paid on scarce land.  Increasing the rent does not increase the supply the land.  The supply is fixed.  Don’t worry if you don’t understand this yet.  We’ll spend more time on it below.

“Interest” is straightforward: it is the cost of the use of money over time.  If you borrow $10,000 for your business, then you have to pay interest (say 5%) for using that money.  The person who lent you the money wants something for it.  He’s not going to give it to you for free.

“[[Interest]]” is straightforward: it is the cost of the use of money over time.  If you borrow $10,000 for your business, then you have to pay interest (say 5%) for using that money.  The person who lent you the money wants something for it.  He’s not going to give it to you for free.

“Economic profits” is concept we’ve addressed before.  It is total revenues minus total costs, including opportunity costs of time and money in the costs.

“[[Economic profits]]” is concept we’ve addressed before.  It is total revenues minus total costs, including opportunity costs of time and money in the costs.

'''III. Interest'''

'''III. Interest'''