Saturday, August 11, 2012

Class XI, Principles of Economics, "Rent"

Definition of Rent

In ordinary sense the term rent refers to the hiring charges paid to the owner of an asset for using his right of ownership for a specific period of time. In economics the term rent is called economic rent. It is defined as

“That part of the payment by the tenant, who is made only for the use of land i.e. free gift of nature”.

In economics rent is mainly related to agriculture and is mainly distinguished as economic and contact rent.
Economic Rent and Contact Rent

Some times the agriculturist tenant makes the payment which consist on capital made by the landlord such as drainages, wells etc. This part of the payment, which consists of the interest on capital made by the landlord, is called contact rent. Where as the part of the payment which is made for the use of land only is called economic rent.
Rent and Transfer Earnings

The concept of the rent is also explained by the help of transfer earnings. The amount which factor can earn in its next best paid alternative use called transfer earning. In this sense if the factor is earning above its transfer earnings, the surplus or excess earnings is called economic rent.

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