Published by: sadikshya
Published date: 02 Jul 2021
Meaning of rent, in a general sense the amount of money paid to the owner for the use of his building, shops, etc is called rent. But in economic rent is simply the price for the use of original power (fertility) of land paid by tenants to landlords. According to David Ricardo “Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible power soil”. According to Marshall “The income derives from the ownership of the land free gift of nature is commonly called rent”.
There are two types of rent. They are as follows.
Economic rent
According to classical economist economic rent is the net amount paid to the landlord just for the uses of land. It does not cover the cost of other factors of production such as cost of capital, cost of labour, etc. modern economists opined that economic rent is the return not only from land but also from other factors of production when supply is perfectly inelastic.
Contract rent
The total amount paid by the tenant to the landlord for the use of land is known as contract rent. It is determined by the contract or agreement between the landlord and tenant. The contract rent is called greater, equal to or less than economic rent.