Answer to Question #254213 in Microeconomics for Leah

Question

Discuss the main features of the Ricardian Theory of Rent. How do these contrast with the Modern Theory of Rent?

Answer 1

The main features of Ricardian Theory of Rent are:

 i) Rent is paid to land only. 

ii) Rent is price paid for the use of original and indestructible powers of the soil.

iii) Rent is a differential surplus—the difference between the produce of the superior lands and marginal lands.

In Modern Theory of Rent, Rent can arise in respect of any factor of production, and not merely land. Rent is a surplus. In the sense of surplus, rent is a payment in excess of transfer earnings.