DIFFERENT TYPES OF RENT-ALL YOU NEED TO KNOW
The word rent can refer to any periodic payment made regularly for the hire of a good e.g. a house, a flat, a shop, etc. Rent is the share of the national income that goes to the owners of the land. Mineral royalties are a form of rent. The amount of economic rent is determined by the richness of the land or mine since the greater the value that a given amount of labour can produce, the greater the surplus from which rent can be paid.
“Economic Rent may be defined as any payment to a factor of production which is in excess of the minimum amount necessary to keep the factor in its present occupation.”
“Rent is the difference between actual payment to a factor and its supply price or transfer earnings.”
Different Types of Rent:
1. Economic Rent:
Economic rent refers to the payment made for the use of land alone. But in economics the term rent is used in the sense of economic rent. In the words of Ricardo and other classical economists, economic rent refers to the payment for the use of land alone It is also called Economic Surplus because it emerges without any effort on the part of landlord. Prof. Boulding termed it “Economic Surplus”.
2. Gross Rent:
Gross rent is the rent which is paid for the services of land and the capital invested on it.
Gross rent consists of:
(1) Economic rent. It refers to payment made for the use of land.
(2) Interest on capital invested for improvement of land.
(3) Reward for risk taken by landlord in investing his capital.
3. Scarcity Rent:
Scarcity rent refers to the price paid for the use of the homogeneous land when its supply is limited in relation to demand. If all land is homogeneous but demand for land exceeds its supply, the entire land will earn economic rent by virtue of its scarcity. In this way, rent will arise when supply of land is inelastic. Prof. Ricardo opined that land was beneficial but it was also scarce. Productivity of land was indicative of the generosity of nature but its total supply remaining more or less fixed symbolized niggardliness of nature.
4. Differential Rent:
The model which is assumed to discuss the problem of scarcity rent considers that land is both homogeneous and scarce. This is not, however, a very realistic model. Because all land is never of the same quality. It is reasonable to assume that a particular stretch of land will not be so fertile as the rest of that. This type of situation leads to differential rent i.e., rent will be different on each grade of land. Differences between the fertilities of different types of lands will cause differences in their rents. Rent will be lower on the less fertile land and higher on the more fertile land. However, rent is caused solely by the fact that land is scarce.
5. Contract Rent:
Contract rent refers to that rent which is agreed upon between the landowner and the user of the land. On the basis of some contract, which may be verbal or written, contract rent may be more or less than the economic rent.
