The 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.
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:
The modem 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 an 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.
