Theory Of Rent Essay

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1. Explain The Differential Rent Theory Of Ricardo With Its Limitation. [1] Introduction : David Ricardo was first to study rent. In this book "Principle of Political Economy and Taxation" in 1817, the thoughts he presented about rent are known as Ricardian theory of rent. Definition Rent :In words of Ricardo, "A share given to the owner of the land from the product of the land, for the use of fundamental and indestructible power of land , is rent." After deducting the cost of production from the product of land, the surplus that remains is described as rent by Ricardo. The land earns rent because of fundamental and indestructible power. Thus, only the land-owner can earn the rent. [2] Explanation of theory : According to Ricardo, the rent occurs due to the peculiarity of land. Difference between the different units of land is called the peculiarity of land. All units of land are not equal in fertility and location. Thus, all the units are not uniform qualitatively and the supply of land is not infinite. There is a scarcity of land. * According to Ricardo, " When the less fertile land is brought under cultivation the rent occurs to more fertile land. " Ricardo has taken the help of imagination of marginal land to explain the concept of rent. The cost of production of marginal land and its product are equal. Therefore, marginal land earns no rent, while the product of intramarginal land is more than its cost of production and so it earns rent. In short, difference in infertility of land is the cause of rent. The size or the proportion of rent depends on the difference in the quality of land. Therefore, Ricardian theory of rent is known as the theory of differential rent. [3] Assumptions of the Ricardian theory of rent : (1) Only the owner of the land earns rent. Other

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