# Rent

Assistant em Intern at SBI
4 de Jan de 2012
1 de 10

### Rent

• 2. RENT  Economic Rent. Rent as Surplus  Contract Rent. RENT Differential Rent Scarcity Rent Quasi Rent
• 3. Differential Rent  By Ricardo : “Rent is that portion of the produce of the earth which is paid to the landlords for the use of original and indestructible powers of the soil.”  By Example : Grades of Yields in Price in Total land Quintal per Quintal (\$) Returns (\$) Acre A 50 50 2500 B 35 60 2100 C 20 70 1400 D 15 80 1200
• 4. Differential Rent Graph : For A , 50-15 =35 For B , 35-15=20 For C , 20-15=5 For D , 15-15=0
• 5. Differential Rent Critical Appraisal : - 1.”Original and indestructible Powers” 2.Use of term Fertility. 3.No-rent land. 4.Best lands cultivated First.
• 6. Scarcity Rent  Ricardo's theory explains why one land commands higher rent than another. But it fails to answer how rent arises. The modern economist has evolved a theory called the Scarcity Rent.  According to it, rent arises due to the relative scarcity of land in relation to its demand. The greater the demand for land the higher shall be its rent. Thus Rent is the resultant of the interaction of the forces of demand and supply in relation to land. The modern theory of rent is also called on the demand and supply theory.
• 7. Scarcity Rent Demand Side Supply Side  The demand for land is derived  The supply of land is fixed. from the demand of the Thus increased rent cannot products of land. increase supply. Nor fall in  If the demand for products price of land can decrease its increases, there will be a supply. corresponding increase in the demand for the use of land.  Supply of land is negligible. It  The demand curve for a factor represents a case of perfectly slopes downward from the left inelastic supply- The rent may lo the right.(Law of Marginal rise or fall but the supply of Productivity). land remains the same.  The downward sloping  Rent is determined at the point demand curve expresses that where demand for and supply more land will be demanded at land intersect each other. lower rent.
• 8. Quasi-Rent  The concept of 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 response to an increase in the demand for them , hence this is a Short Term concept.
• 9. Quasi-Rent Graph : SS is the absolute inelastic supply. SS cuts DD the demand curve at E. So OP is the price when supply is OS for a normal demand. But when the demand increases to DD’ in a short run price changes to OP’ being supply constant at OS . So the change from OP to OP’ is the quasi rent. In the long run the supply is totally elastic represented by PL so supply changing to OM price keeps to be OP so thus no change in price and no quasi rent .