Answer to Question #260677 in Microeconomics for Hashtag

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:

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

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

iii) Rent is paid to land only

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