Rent and its types


In general sense, the payment received by an owner of any real assets in return for its use for a particular period of time is called rent. In economics, rent refers to the payment for the use of services of those factors of production which are fixed in supply such as land and also to the payment which are variable in supply such as capital goods, variables, machines, building, etc.

            According to classical economist David Ricardo, “Rent is earned only from the land and rent is the payment received by the landlord for the use of original and indestructible power of soil”.
             Modern economists state that rent is earned from all the factors of production. There are mainly two concepts of rent which are explained below:-

1. Contract rent:-

The rent that we mean in our daily life is called contract rent. It is also called gross rent. Contract rent is the actual payment made on the factor owner for the use of factor for a period of time. For example- payment made to the owner of the house, owner of the land, owner of machinery and equipment, etc. by its users.
It is determined by the agreement made between two parties i. e. owner and renter of the factor.

2. Economic rent:-

In economics, rent refers to economic rent. It is a part of contract rent which is paid to the owner for the use of factor. Classical economist David Ricardo argued that economic rent is earned only from the land. It refers to that part of the payment made by a tenant to landlord only for the use of land.

            According to the modern economists, not only land but other factors of production also earn rent. They define economic rent as the surplus of current earning over transfer earning. Current earning is the earning of a factor of production from its current use and transfer earning is the earning of the factors of production from its alternative use.

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