Rent:

In simple words, ‘ rent’ is used as a part of the product which is paid to the owner of land for the use of his goods and services.

Types of Rent:

The main types of rent are as under:

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 the landlord. Prof. Boulding termed it “Economic Surplus”.

2. Gross Rent: Gross rent is the rent that is paid for the services of land and the capital invested in it.

Gross rent consists of:

(1) Economic rent. It refers to the payment made for the use of land.

(2) Interest on capital invested for improvement of land.

(3) Reward for the risk taken by the 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 the supply of land is inelastic. Prof. Ricardo opined that land was beneficial but it was also scarce. The 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: Differential rent refers to the rent which arises due to the differences in the fertility of the land. In every country, there exists a variety of land. Some lands are more fertile and some are less fertile. When the farmers are compelled to cultivate less fertile land the owners of more fertile land get relatively more production. This surplus which arises due to the difference in fertility of the land is called the differential rent. This type of rent arises under extensive cultivation. According to Ricardo, “In order to increase production on the same type of land, more units of labor and capital are employed.”

5. Contract Rent: Contract rent refers to that rent that is agreed upon between the landowner and the user of the land. On the basis of some contracts, which may be verbal or written, contract rent may be more or less than the economic rent.