Types of rent

In layman’s terms, rent is a component of the product paid to the owner of land in exchange for the use of his goods and services.However, in economics, rent has been defined variously from time to time. Thus, rent only relates to payments made for elements of production that are in imperfectly elastic supply. It is, for example, the price paid for the use of land. The government has also gone on to implytds on rent section.

Rent is defined as “that share of the produce of the ground that is transacted to the landowner for the use of the original and indestructible powers of the soil.” -Ricardo. Rent is the income generated from the ownership of land and other natural resources.” He also referred to it as ‘Quasi Rent,’ which occurs on man-made equipment and machines in the short run and tends to dissipate in the long run. Marshall 

1. Economic Rent

Economic rent is the payment given solely for land use. However, in economics, the term rent refers to economic rent. As defined by Ricardo and other classical economists, economic rent is the payment for the sole use of land. It is also known as Economic Surplus because it occurs without the landlord’s intervention. Prof. Boulding referred to it as an “Economic Surplus.”

2. Gross Rent

Gross rent is the rent paid for the services provided by the land and the capital invested in it.

Gross rent consists of:

  • Financial rent. It refers to payments given in exchange for the use of land.
  • Interest on funds invested for land improvement.

3. Scarcity Rent

Scarcity rent is the price paid for using homogenous land when supply is limited compared to demand. If all land is homogeneous, but demand for land exceeds supply, all land will earn economic rent due to scarcity. When the supply of land is inelastic, rent will rise. Prof. Ricardo believed that while the land was helpful, it was also scarce. Land productivity reflected nature’s generosity, but the fact that its overall supply remained more or less constant reflected nature’s niggardliness.

4. Differential Rent

Differential rent is the rent that emerges from variances in land fertility. Every country has a different type of land. Some areas of land are more fruitful than others. When farmers are forced to cultivate the less fertile ground, the owners of more fertile land produce more. The differential rent refers to the surplus that occurs due to differences in land fertility. This form of rent comes as a result of widespread cultivation. “To expand production on the same type of land, more units of labor and capital are used,” says Ricardo.

5. Contract Rent

Contract rent is the rent agreed upon by the landowner and the user of the land. Contract rent may be greater or less than economic rent, depending on the terms of a contract, verbal or written.These were the different types of rent in 2022. To know more about what does section 87a imply, click here.