Rent & Types of Rent
Classical definition of Rent:
According to Caver, “Rent is the price paid for use of land”
According to David Ricardo, “Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil”
Modern Definition of Rent:
Rent is the difference between the actual earnings of a factor unit and its transfer earnings* i.e. the difference between the actual payment made to a factor and the supply price of the factor.
*Transfer Earnings: Earnings made by transferring services to some other use.
Types of Rent
In Economics, there may be the following types of rent:
Economic Rent – It is the payment made for the use of land or payment for the use of scarce natural resources.
Scarcity Rent – Scarcity of rent is the main cause of emergence of Rent. Therefore scarcity rent is the price paid for the use of a homogeneous land when its supply is limited in relation to its demand.
Differential Rent – According to Ricardo rent arises due to difference in fertility of land. Thus the surplus production which arises due to difference in fertility of lands is called differential rent.
Situational Rent – It refers to the rent arising out of difference in situation of land .i.e. it simply means that the lands situated near the markets will have more rent than the land far from markets due to the situation of land.
Contractual Rent – It refers to the amount mutually agreed upon between the owner and the tenant by a contract. The amount directly depends upon the demand and supply of land in the market.
Gross Rent – It is the entire amount that a tenant pays to the owner of a land. It includes:
- Economic Rent
- Interest on amount invested on land
- Reward for risk taken by the landlord
Quasi Rent – It refers to the surplus earned by the man-made factors of production whose supply is inelastic or fixed in the short run but elastic in the long run.