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This model is the urban equivalent of von Thünen's rural land use model in that both are based upon locational rent. The main assumption is that in a free market the highest bidder will obtain the use of the land. The highest bidder is likely to be the one who can obtain the maximum profit from that site and so can pay the highest rent.
Differential ground rent and absolute ground rent are concepts used by Karl Marx [1] in the third volume of Das Kapital [2] to explain how the capitalist mode of production would operate in agricultural production, [3] under the condition where most agricultural land was owned by a social class of land-owners [4] who could obtain rent income from farm production. [5]
The produce obtainable on the best available rent-free land is known as the margin of production. Since landlords have a monopoly over a given location, the only limiting factor for rent is the margin of production. Thus, rent is a differential between the productive capacity of the land and the margin of production. [citation needed]
The “40x” rent rule states that your annual gross income should be around 40 times your monthly rent payment. For example, if your annual pre-tax income is $50,000, the rule suggests your ...
A common rule of thumb is to spend less than 30% of your salary on housing costs. The U.S. Department of Housing and Urban Development considers anyone spending more than 30% "cost burdened ...
Economic rent is also independent of opportunity cost, unlike economic profit, where opportunity cost is an essential component. Economic rent is viewed as unearned revenue [ 2 ] while economic profit is a narrower term describing surplus income earned by choosing between risk-adjusted alternatives.
An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment and a qualifying ratio of 25%. For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a ...
Businesses and industries tend to locate in areas where these inputs are abundant and inexpensive, as this can help to reduce production costs and increase profits. For example, a manufacturing company may choose to locate near a large pool of skilled labor, or a resource-based industry such as mining or forestry may choose to locate near ...