• Card 86 / 100: Explain the distinction economists often make between interest and profit.

    Answer:
    Gross or accounting profit is total revenue minus out-of-pocket expenditures. However, this calculation ignores the interest on the invested capital. Even if a business venture "makes money," if the investor could have ended up with even more money through a different (and equally safe) investment, then in a sense the investor actually suffered a loss. Sample Partial Credit Answer Profit can mislead if it doesn't include interest.

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Capitalism: The Market Economy

Access: Public Peer Review

Attribution:  Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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