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The concept or term ‘rent’ is an unfortunate one. Its meanings in economics differ from the ordinary usage. In the every day speech, the term, rent is applied to the periodic payments made regularly for the hire of a particular asset.

For example, the payments made by a tenant to the owner of a house, or factory or land on weekly, monthly, or yearly basis is a rent in the popular sense.

Definition and Meaning in Economics:

“The concept of rent or to be more precise ‘economic rent’ is used in a special sense. According to the classical economists, rent is a price of land. It is a payment made by a tenant farmer to the landlord for the use of original and indestructible powers of the soil”.

Modern Concept of Rent or Economic Rent:

The modern economists do not use the concept of economic rent in the restricted some. They apply rent to all the factors of production which do not have a perfect elastic supply. According to them:

Economic rent is a surplus or excess over the transfer earnings”.

In the words of Building:

Economic rent may be defined as any payment to a unit of production which is in excess of the minimum amount necessary to keep that factor in its present occupation”.

Example:

For example, a typist is ready to work for $4600 per month in a college but he is paid $4900 per month. This is because of the fact that the market demand for the typists is greater than its supply. So long as the supply cannot be adjusted to demand the typist will continue earning a payment in excess of $4600 of the amount which is necessary to keep him in that occupation. This monthly surplus money of $300 (4900 – 4600 = $300) is an economic rent.