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Definition of rent
Rent definition
Ricardians view
Marshalls view
According to him rent is defined as the price paid for the use of
original and indestructible powers of soil.
Gross rent: Rent paid under contract i.e. beside the price paid for
the use of land, which includes interest on capital which is invested
on the land e.g. tanks, wells and wages for the supervision of land
Economic rent: is the only price paid for the services of land.
Ricardo was of the opinion that only land earns rent because its
supply is perfectly inelastic. Its supply cannot be changed and it is
also a free gift of nature
Determination of rent
There are manly two theories given by the
economist in order to determine rent.
Rent Determination
Ricardian theory of rent
a)
b)
a)
b)
Techniques
Farming techniques
Extensive cultivation
Intensive cultivation
Grade of land
A
B
C
D
Production
(in tons)
25
20
15
10
Surplus i.e.
Rent in tons
25-10=15
20-10=10
15-10=5
10-10=0
RENT ON LAND A
25
RENT ON LAND B
20
RENT ON LAND C
15
NO RENT LAND
10
5
D
GRADES OF LAND
Units of Labor
and Capital
Marginal
Production
(in tons)
Surplus
Production or
Rent (in tons)
1st
25
25-10=15
2nd
20
20-10=10
3rd
15
15-10=5
4th
10
10-10=0
15
NO RENT UNIT OR
MARGINAL UNIT
10
5
1st
2nd
3rd
4th
Demand Side
Supply Side
RENT
D1
S
D
R1
E1
D2
R2
D1
E2
D
S
D2
Q2
Q3
DEMAND AND
SUPPLY OF LAND
Rent as a surplus
PRICE
D1
E1
P1
D1
D
ACTUAL EARNING
=RENT
D1
E1
E
P
NO RENT EARNING
D1
M1
DEMAND AND
Elastic Supply
PRICE
D1
D
S1
E1
P1
RENT
P
EARNING
S
D1
D
O
M1
Modern Theory as an
Improvement Over Ricardian
Theory of Rent
Similarities
a)
b)
c)
d)
Differences
Despite the similarities given above, rent and
Quasi-rent differ. The following points
show it :
i.
Rent is earned by the free gifts of nature
such as land. But Quasi-rent is the excess
income earn by the man-made factors.
ii.
Rent is earned both in short run and long
run. While Quasi-rent occurs only in short
run because in the long run, man-made
factors have their perfectly elastic supply.
iii.
iv.
v.