11. Markets for Capital and Natural Resources

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Money related Markets. Interest for budgetary capitalSupply of monetary capitalinterest ratefinancial capital = loanable assets. Interest for Financial capital. firms interest assets to back capital purchaseshigher financing cost, more costly to borrowlower Q requested of assets. Shifts popular for assets.

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11. Markets for Capital and Natural Resources Financial markets Natural Resource markets

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Financial Markets Demand for budgetary capital Supply of money related capital loan fee monetary capital = loanable assets

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Demand for Financial capital firms request assets to back capital buys higher loan cost, more costly to acquire bring down Q requested of assets

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financing cost D Q reserves

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Shifts popular for assets populace development increment interest for products, increment interest for capital, increment interest for assets

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innovation increment interest for new capital, increment interest for assets to back it

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Government getting Federal gov't deficiencies move request to one side

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Supply of Financial capital individuals' investment funds choices tradeoff between devouring today & expending tomorrow Time inclination higher financing costs support sparing higher open door cost of current utilization higher Q provided of assets

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Shifts in supply of assets populace higher populace, all the more sparing supply moves right wage higher salary, more funds supply moves right

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expected future wage spare today in view of future needs - - retirement, school spare to cover utilization up time anticipate that wage will rise - - spare less today, supply falls anticipate that pay will fall - - spare all the more today, supply rises

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loan fee S i* D Q stores Q* Financial market equilbrium

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Natural Resource markets renewable assets arrive, backwoods, animals nonrenewable assets fossil energizes, metals

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Market for land supply is settled for sort or area flawlessly inelastic

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lease S r* D Q arrive Q*

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monetary lease for land is uncommon land is accessible regardless of the possibility that rent=0 request influences P, not Q monetary lease above what is required to initiate Q provided of component

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lease S financial lease r* D Q arrive Q*

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Pure monetary lease Income earned by asset with a splendidly inelastic supply

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Economic Rent measure of asset profit ABOVE circumstance cost or asset income – least required income "sauce"! "reward"!

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illustration: Shaquille O/Neal 2000: $35 million what is least for which he would play b-ball and support stuff? assume $1 million monetary lease: $34 million

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when do assets gain lease? less versatile (more inelastic) the supply, more lease as a % of aggregate income

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Differential lease Rents earned to prevalent units of an asset Where nature of asset influences profitability Examples Highly rich farmland Highly talented trial legal advisor

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Inframarginal lease Total lease when units of asset contrast in their chance costs What causes contrasts? Contrasts in destinations Differences in requirements

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cases Nursing Find the work compensating Other limitations in the employment showcase Teaching summer school Presence of little kids Children in school

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P res. S P* D Q res. Q* upward-inclining supply profit split lease opp. fetched

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Supply of nonrenewable asset at point in time Q is settled yet after some time utilize - - diminish supply new disclosures - - increment supply innovation for better utilize - - diminish request

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case: metals nonrenewable asset find new sources utilize substitutes (plastic) Recycling innovation

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Market-guided protection Markets have worked in motivations for proficient asset utilize If an asset turns out to be rare Prices rise Copper is up half in 2006

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If costs rise People utilize less (save) People substitute Firms search for new sources Firms search for choices

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Problems with business sectors & nonrenewable assets Externalities Extraction of oil, metals, regular gas have enormous adverse externalities Market brings about an excess of extraction Government approaches Major tax reductions to household vitality makers Prices may not send the correct signs

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Doomsday situations Aka "We are coming up short on everything and we are all going to bite the dust"

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Paul Ehrlich The Population Bomb , 1968 "a significant sustenance deficiency in the United States in the 1970s. . .a huge number of individuals will starve to death." By 1999 U.S. populace would be just 23 million (actual 1999 U.S. populace = 288 million)

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Limits to Growth 1974 World will come up short on gold by 1981 mercury by 1985 tin by 1987 zinc by 1990 petroleum by 1992, and copper, lead, and characteristic gas by 1993

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A financial analyst's negation: Julian Simon The Ultimate Resource (1983) Hoodwinking the Nation (1999) Doomsayers belittle human resourcefulness

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Simon versus Ehrlich Made a wager in 1980 for $1000 Simon wager cost of 5 key metals would be LOWER in 1990 Signaling less shortage Simon won. Ehrlich paid Simon offered to restore the wager, Ehrlich cannot

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Real worries about assets today: Has characteristic gas creation crested Will oil generation soon crest? Hubbert's bend

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Are we coming up short on copper? Is it true that we are past the tipping point on a dangerous atmospheric devation? In any case, . Doomsayers need to assume some liability for absence of world activity