Notes And Study Material for Exam Papers

The theory of economic rent was first propounded by the English classical economist David Ricardo. David Ricardo in his book “Principles of Political Economy and Taxation” defined rent as “That portion of produce of the earth which is paid to a land lord on account of the original and indestructible powers of the sil.” Ricardo in his theory of rent has emphasized the rent is reward for the services of the land which is fixed in supply. Secondly it arises due to original qualities of land which are indestructible. The original indestructible powers of the gil include nature soil fertility, mineral deposits, climatic conditions etc. Rent under extensive cultivation: According to Ricardo, all the units of land are not of the same grade. They differ in fertility and location. The application of the same amount of labour, capital and other cooperating resources give rise to difference in productivity. The difference in productivity or the surplus which arises on the superior unit of...

The modern economists like Pareto, Mrs. Joan Robinson, Boulding, Singer, and Shepherd have tried to simplify and generalize the Ricardian Theory of Rent. According to them the Ricardian theory of rent is too closely related to land. This creates an impression that rent is a peculiar earning a land only. The fact however is that other factors of production i.e. labour, capital and entrepreneurship may also be earning economic rent. The determination of economic rent, the modern economists say, can be explained in the same manner as the reward of other factors, which is by demand and supply factor. Demand and Supply Analysis A) Demand for a factor: The demand for a factor which may be land labour or capital is a derived demand. Land say for instance is demanded for its produce. The higher the produce, the greatest is the demand for land. A firm will pay rent equal to the marginal revenue productivity of land. The rent diminishes as more land is used due to the operation of law ...