(SOLVED) What Is Ricardo Theory Of Rent?

As early as 1817 David Ricardo applied the idea of rent to agricultural land only 👍 The notion of paying rent applies to land is fixed in supply 😊 In Fig. 2 s the downward sloping derived de­mand curve for land intersects com­pletely inelastic supply and at E to determine rent per acre, I.e., the price that has to be paid for using the serv­ice of land for a specific period. So, scarcity of land as a factor of produc­tion gives rise to rent. If rent rose above the equilibrium level, the amount of land demanded by all the farmers would be less than the exist­ing amount that would be supplied.
This difference, paid to the owner (if the cultivator is a tenant) or kept to himself (if he is the owner), is economic rent. In the first case (I.e., when the cultivator is a tenant) it is contractual rent; and in the latter (I.e., when the cultivator is the owner) it is known as implicit rent. ‘B’ plots do not pay any rent. To go a step further, we see that after all land of ‘B’ quality has also been taken up, we begin cultivating ‘C’ plots. Now even ‘B’ quality land comes to have differential surplus over ‘C’. Rent of ‘A’ increases still further. (edited by Janice Gray from Solapur, India on October 10, 2020)
Image #2
According to Domingo Sauer at, david Ricardo’s contributions to economics are immeasurable, but he is highly regarded for his contributions to major theories like the law of diminishing returns, comparative advantage, theory of rents, and the labor theory of value. With the law of diminishing returns theory, Ricardo and other economists suggest that after an ideal point in production, adding an additional unit will result in smaller increases in output. Ricardo suggests, in the comparative advantage theory, that nations fare better when they focus on producing goods with the lowest production opportunity costs. The labor theory of value states that the value of a good is measured by the labor hours it had taken to produce it, not how much is paid for the labor. Ricardo is also widely known for the introduction of the concept of rents. In his theory of rents, he asserted that asset owners reap accrued benefits only because of their ownership rights. (revised by Aman Edwards on August 13, 2021)
Image #3 goes on to mention how the land of the second quality is now said to be land on the margin of cultivation. Land on the margin just pays for the expenses of cultivation, viz., wages and profit on capital, and it yields on surplus for rent. Rent is measured from this point for rent is always the difference between the produce obtained by the employment of the two equal portions of capital and labour upon the land. Of course, cost of transportation must be first deducted. The margin of cultivation is determined by the price of agricultural produce. As the price of this rises, lands of inferior quality will pay for cultivation and, similarly, if the price falls, those lands will fall out of cultivation.
In the eighteenth century, the had Physiocrats given land a special status in the economy. It was, according to François Quesnay, the only productive input. All wealth came from the land. Adam Smith and A. R. Turgot did not entirely side with the Physiocrats on that point and saw industry (e.g., Smith’s pin factory) also as a source of wealth. But land kept a special status in the writings of many classical economists, including David Ricardo. He was concerned, among other things, with explaining the earnings that accrue to different groups in society and understanding the impact of land appropriation on commodity… (credit to Laticia Ocampo from Shangyu, China for telling us).
Mehreen Alberts

Written by Mehreen Alberts

I'm a creative writer who has found the love of writing once more. I've been writing since I was five years old and it's what I want to do for the rest of my life. From topics that are close to my heart to everything else imaginable!

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