Ricardo Rents and Profits

Question 1

Theory of Rent

Answer 1

we work the land, we sell it, part of the revenue of what we sell we use to pay rent on the land

Question 2

assumptions of the theory of rent

Answer 2

1. land differs in fertility, can be ranked lowest to highest
2. there is competition between capitalist farmers (i.e. profits are equalized)

Question 3

Wages in Theory of Rent

Answer 3

at subsistence level

Question 4

Net Produce

Answer 4

profit + rent, or

total produce - wages - replacement capital

Question 5

Rental Rates of Land

Answer 5

no one pays rent in a newly settled country in which fertile soil is abundant

Question 6

Why does rent progress in such a way that profits equalize?

Answer 6

because someone would come in and make a higher bid on he more fertile land if it was being rented for lower - they would up bid it until they were indifferent between that most fertile land and paying no rent on the least fertile land

Question 7

what does capital accumulation lead to?

Answer 7

increased demand for workers and increase in the wage above the subsistence level which in turn leads to an increase in the population - this can repeat itself as long as capitalist make profits, once all the profit is squeezed out then there is no demand for additional workers

Question 8

what drives up the population?

Answer 8

subsistence level increase

Question 9

long run wage rate

Answer 9

subsistence level because the increase will happen then the least fertile land will be brought into cultivation and there will be no profits

Question 10

Does rent squeeze out profit?

Answer 10

not directly, instead it is the increase in wages due to an increase in the price of corn

Question 11

can you substitute between labor and capital in this model?

Answer 11

no, despite wage increase