ECON 103 Lecture Notes - Lecture 16: Cash Flow, Marginal Utility
4 Apr 2017
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Understand that interest rates help us understand how capital is priced. Capital = a thing that yields service over time. It offers sitting services to people over a long period of time. How to determine the price of a capital thing, use the following function. What must r equal in equilibrium? r* = (f p) Apply some calculus to the above formula and u get Now consider the formula with the power n to indicate interest over x amount of years. From eyeing this formula, you can tell instantly that it is not a linear formula because of the ^n. So by using the chair every year, the longer the asset lives and gives services then the higher price p becomes (worth increases). If annuity lasts forever, the interest rate remains static, the formula then changes to Income is a constant cash flow an individual receives, wealth is a static stock.
