RENT

Classical definition:
Rent is the price paid for the use of land
Rent is that portion of the produce of the earth which is paid to the land
lord for the use of original and indestructible power of the soil
Modern definition:
In modern economic usage, rent is represented as the difference
between the total return to a factor of production (land, labour, capital) and its
supply price – that is, the minimum amount necessary to attain its services.
Types of rent:
+ Economic rent: may be defined as payment made to a factor of
production in excess of the minimum amount necessary to keep the factor in
its present occupation.
+ Gross rent: is paid for the services of land and capital invested on it.
It includes the following: + payment for use of land
+ interest on capital invested on it
+ Wages for the services of land lord for
supervising the investment in land
+ Contractual rent: It is the payment made to the land lord by tenants
on the basis of some contract. It may be more or less than economic rent.
+ Scracity rent: it applies to all the factors of production whose supply
it less elastic.
+ Differential of situation rent: it refers to the rent arise due to the
difference in the fertility of land.
+ Quasi rent: is the surplus earned by manmade factors of production

Ricardian rent
- It is followed from the views of classical writers about the operation of
law of diminishing returns in agriculture (West, Torrents...)
- David defined rent as “the portion of the produce of the earth which is
paid to the land lord for the use old original and indestructible powers
of the soil.
- Ricardian rent is also known as “pure rent”
- The true economic rent is only a payment for the use of land. It
excludes interest on land lord’s investment
Assumption old Ricardian theory of rent:
- The supply of land is fixed and existing quantity of land gifted ny
nature cannot be increased or decreased.
- Another assumption is that original powers such as fertility of land are
gifted by God and are not due to human efforts of any type
- Land is a non-perishable factor of production
- Land has only one use i.e cultivation
- Different lands have different fertility levels
- Utilization of land for cultivation is done based on the order of fertility
of land
- Law of diminishing returns or increasing costs operates in agriculture
- Assumption of perfect competition is also made
Dertermination of rent:
Rent can be dertermined under two situations:
- Extensive cultivation: it refers to the system of cultivation wherein more
land is used to increase production
Grades of land Yeild per acre rent
A 60 60-20=40
B 50 50-20=30
C 35 35-20=5
D 20 20-20=0
 A B C D

70

60
60
50
50
40

30 35

20
20
10

0
Category 1

- Intensive cultivation: it refers the system of cultivation where large

amount of labour and capital are used in same piece of land for
increasing production
Criticize of Racardian theory:
- No original and indestructible power
- Wrong assumption of no rent land
- Rent enters into price
- Wrong assumption of perfect competition
- All lands are equally fertile
- Historically wrong
- Neglect of scarcity principle
- Rent is not only for land

Modern theory
Definition:
- Rent is represented as the difference between the total return to a factor
of production (land, labour and capital) and its supply price – that is
minimum amount necessary to attain its service
- According to the modern theory of rent, the rent of a factor, from the
point of view of any industry, is the difference between its actual
earnings and transfer earnings.
Rent = Present Earnings - Transfer Earnings
 - Rent can be a part of the income of all factors of production. Entire
income of land is called rent because its supply is perfectly inelastic.
But in this case of other factors, only a part of their income is of the
nature of rent.
FEATURES OF MODERN THEORY OF RENT:
+ Rent can be a part of the income of all factors of production. Entire
income of land is called rent because its supply is perfectly inelastic. But in
this case of other factors, only a part of their income is of the nature of rent.
+ Amount of rent depends upon the difference between actual earning
and transfer earning. Rent arises when the supply of the factor is either
perfectly inelastic or less elastic. On the other hands no rent arise when the
supply of the factor is perfectly elastic
DIFFERENCE BETWEEN RICARDIAN AND MODERN THEORY OF RENT
Ricardian Theory MODERN THEORY OF RENT
rent is the reward for the original attributes it to the difference
and indestructible powers of the between actual earning and
soil transfer earning.

rent does not enter into price relation between rent and price is
not so simple

Quasi rent
- Was given by Marshall
- It is the surplus earned by the instruments of production other than land
- It stands for the whole of the income which some agents of production
yield when demand for them suddenly increased
- It is earned when supply cannot be increased in respond to an increase
in the demand for them
- Quasi Rent = Total Revenue Earned -Total Variable Costs

- Similarities between Rent and Quasi rent

+ Similarities
- Quasi rent arises when the demand for man made goods increases,
while rent arises with the rise in the demand for the products of land.
+ Distinction Between Rent and Quasi Rent
RENT QUASI RENT
payment for natural gifts of nature a payment for manmade appliances
like land like machines
persists in both short run and long quasi rent is a short run
run
permanent in nature a temporary phenomenon
the difference between total revenue difference between total revenue
and total costs variable costs
cannot be zero can be zero