Saturday, July 2, 2011

Rent Concepts homework help

The term rent is used not only in the sense of reward for the use of land but also in the sense of surplus earnings of the factors over their transfer earnings. In fact in the alter sense the concept of rent has been generalized so that it applies to surplus return over and above the transfer earnings of all factors of production. So that it is no longer peculiarly associated with land we shall first discuss the determination of land rent and will them explain the concept of rent as surplus return over transfer earnings of the factor.

A distinguishing feature of land is that no human effort or sacrifice has been necessary to make it available to the society. Land to society is a free gift of nature. Society has not incurred any cost to obtain the land further since land is not producible by man its supply is absolutely inelastic although its productivity can be increased by various improvements are made by the efforts of man and therefore constituter capital goods. As the quantity of land available for use is scarce relative to demand a price must be paid for its use. This price for the use of land or what is commonly called land rent is obtained by those people in the society in whom the ownership of land is vested. Since these private owners of land have not incurred any relics to bring land into existence the rent which they obtain is a surplus payment to them. the whoa of the earnings of land rent (excluding of course the return on capital investment in the form of improvements made on land by the owners) are surplus since land is there in any case and does not require any costs or human efforts to be made to bring it not existence. Thus the term rent which was originally employed for  the price paid for the use of land came to be used fo rate surplus earnings of any factor of production price paid for the use fo land came to be used for the surplus earnings of any factor of production in excess of the cost incurred to obtain its service. Since the land in it’s entirely to the whole society being free gift of nature does not require any cost to be paid in order to make it available to the society for use in production the whole earnings of land are regarded ad surplus. Thus the whole earnings oaf lands form the view point of the society become economies rent. We shall discuss this concept of economics rent is greater detail when we take up the explanation fo the concept of rent as a surplus over transfer earrings to all factor of production.

It should be noted that rent as a payment to the landlord for hiring or use of land by the tenant and the concept of economic rent as surplus over transfer earnings which applies to all factors of producing are altogether different concepts and therefore should not be confused with each other. Modern economists generally call payment of hiring of land as land rent and surplus over transfer earnings of the factors as economic rent.

It is worthwhile to mote here that marshal extended the concept of rent to cover the earnings net of depreciation to and interest charges) of fixed capital equipment like machinery in the short run. The distinguishing characteristic of land is that fact that its supply is perfectly inelastic and therefore its earnings depend mainly upon the demand for it. But in the short run period fixed capital equipment like machinery is likewise perfectly inelastic in supply and cost of production is not relevant once it has been installed for production. Thus in the short period the earnings of fixed capital equipment depend mainly upon the demand conditions and are thus similar to land rent and have therefore been called rent by marshal since these capital equipments are to permanently in fixed call their earnings in the short period as Queasy Rent rather than rent.

No comments:

Post a Comment