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Home Rent Concept of Quasi Rent

 

Concept of Quasi Rent:

 

Definition and Explanation:

 

The concept of quasi-rent owes its origin to Dr. Alfred Marshall. Dr. Marshal is of the opinion that:

 

"It is not possible for human beings to increase the supply of land. It is fixed by Nature. If price of a produce rises, the surface of earth cannot be increased and if price falls, it cannot be decreased. But by appliance of machine which are the product of human efforts, the supply can be increased or decreased if a fairly long period of time is allowed".

 

"Marshall is of the view that a differential surplus which arises from a factor of production, whose supply is fixed for all times to come should be named as rent but a temporary gain which a factor or production earns due to temporary limitation of its supply should be called quasi-rent".

 

Example:

 

For instance, the demand for shaving blades suddenly goes up in Canada and the price of a packet containing 10 blades rises from $15 to $20, The entrepreneurs lured by high profits will naturally try to produce more blades. They may try to meet the demand by working the factory for 24 hours.

 

Let us suppose, the supply is still short of demand and the price remains at $20 per packet. The new entrepreneurs attracted by high profits will establish new factories. A factory cannot be established in a day. It needs time for installing new machinery. When new plants are set up, the supply of blades will increase and the price comes down to the level of their costs of production ($15). The temporary gain which the old factories have earned during the period when new factories were not installed, is regarded as earned during the period when new factories were not installed is regarded as quasi-rent.

 

"Quasi-rent is, thus, a temporary gain which is earned by a factor of production due to the temporary limitation of its supply".

 

Modern View of Quasi Rent:

 

The modern economists do not place land under a separate category. They are of the opinion that when all the factors of production are scarce in a relation to their demand, the rent can arise from all of them. Rent is one of the important members of a large family consisting of wages, interest and profits, or, in the words of Marshall, we can say:

 

"Rent is the leading species of a large genus".

 

How does rent of Land differ from rent of; (a) Fisheries, (b) Mines and (c) Buildings?

 

(a) Rent of Land and Fisheries. If proper care of fisheries is taken and fishing is not done in the breeding season, then the rent of land and fisheries is very similar to each other. A fishery which is well located near the market will be in an advantageous position. Its produce will be marketed at a lesser cost than the other fisheries which are situated at some distance from the market. If the price of fish per kilo in the market is equal to the cost of operating it in the distant fisheries, then the fisheries which are situated near the market will earn a surplus. This differential gain or rent is all due to the factor of situation.

 

If a fishery is more productive in the supply of fish than the other fisheries, then it will enjoy rent in the same way as a superior land enjoys over an inferior land. If fishing is done throughout the year, then the resources of the fisheries will be soon exhausted and the rent will be analogous to mines.

 

(b) Rent of Land and Mines. Rent of mines stands on a different footing from rent of land. There is no doubt that mines are a part of free gift of Nature but they do not posses the quality of being indestructible. As mines are worked out, they soon get exhausted. It is not possible to gain its content by managing it as we do in the case of agricultural land. So the owner of the mines demands of reward, firstly, for the differential gain enjoyed by the mines over other mines and secondly, the compensation for the exhaustion of mine. This compensation is called "royalty". Thus, we find that the rent of land differs from mines as the owners of mines get rent proper as well as royalty.

 

(c) Rent of land and urban site land. Rent of land and rent of urban site do not differ fundamentally from each other. In the case of agricultural land, the fertility of the soil plays a very important part in the determination of rent. As regards urban site rent, it is situational advantage which plays the decisive role.

 

For instance, if two houses quite similar to each other are situated at two different places, one in the heart of the city and the other in the suburb, the former will enjoy more rent than the later.

Relevant Articles:

Definition and Meaning of Rent
Ricardian Theory of Rent/Ricardian Model of Rent
Modern Theory of Rent
Rent and Price Theory
Concept of Quasi Rent
Economic Progress and Rent
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money
 

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