The Ricardian Theory Of Rent

The theory of economic rent was first propounded by the English Classical economist David Ricardo (1773-1823).

David Ricardo in his book. “Principles of Political Economy and Taxation” defined rent as that portion of the produce of the earth which is paid to a landlord on account of the original and indestructible powers of the soil”.

Ricardo in his theory of rent has emphasized that rent is 8 reward for the services of land which is fixed in supply. Secondly, it arises due to original qualities of land which are indestructible. – (The, original indestructible powers of the soil include natural soil, fertility, mineral deposits, climatic conditions etc., etc.)

Rent under extensive cultivation

According to Ricardo, all the units of land are not of the same grade. They differ’ in fertility and location. The application of the same amount of labour, capital and other cooperating resources give rise to difference in productivity. This difference in productivity or the surplus which arises on the superior .units of land over the inferior units is an economic rent. The Ricardian theory of rent is explained by taking an

example.

Grades of land

A    ‘

B

C

D

Yield in quintals per acre

Price-per quintal (Rs.)

Total Return (Rs.)

50

50

2500

35

60

2100

20

70

1400

15

80

1200

In the above schedule, we assume that there are four grades of land A, B, C and D in an uninhabited country. A grade land is more fertile than B grade land. B grade land is superior to C grade and so is C grade to D grade land. Following Ricardo let us assume, a batch of settlers migrate to this island. They begin cultivating A grade land which yield 50 quintals of wheat per acre. Let us suppose now that the population of that country increases and A grade land is not sufficient to meet the food requirements of the growing population. The inhabitants of that country shall then have to bring under cultivation B ,grade land. With the identical amounts of labour and capital. B grade land yields 35 quintals of wheat per acre. A surplus of 15.quintal of wheat (50 – 35 = 15) which arises with the same outlay on A grade land is an economic rent. B grade land being a marginal land gives no rent. When owing to the pressure of growing population and a rise in . demand for food, C grade land is brought under cultivation, it yields only 20 quintals of wheat with the identical amount of labour and capital. With the cultivation of C grade land, the economic rent of A grade land is now raised to 30 quintals per acre: (50 – 20 = 30) and that of B grade land 15 quintals of wheat per acre. C grade land is a no rent land as it is cultivated at the margin. If the expenses of production on A grade of land yielding 50 quintals of wheat are Rs. 2500 and the market price of total yield on A grade land is also Rs. 2500, then A grade land only will be brought under cultivation. A grade land here is the marginal land. If the price of agricultural produce increases (Rs. 60.00 per quintal) and the expenses of producing wheat on B grade land are equal to the market price of. the produce i.e., Rs. 2100, then B grade of land which was hitherto neglected would be brought under cultivation. B grade land then becomes the marginal land. Similarly, D grade land will be the marginal land when it compensates the cultivator by giving a yield of Rs. 1200, and enjoys no surplus over cost. Marginal land is thus not fixed. it varies with the changes in the price of agricultural produce. If population increase still further and the demand for food increases, then D grade land will be brought under plough. The surplus or economic rent of A grade land will go up to 35 quintals (50 – 15 = 35), of B grade 20 quintals, of C grade 5 quintals. D grade land being the marginal land yields no rent. Summing up the entire Surplus on the intia

Y

marginal units of more fertile lands is paid as rent to the land owners.

The Ricardian model is now explained with the help of a diagram.

In the figure (19.1), the various grades of land in the descending order of fertility are plotted on OX axis and yield per acre is shown on OY axis. The cultivated area due to pressure of population and the .rising demand for food is pushed to D grade of land which is a marginal land. The owner of A grade of land gets a surplus, or economic rent of 35 quintals of wheat, of B 2.0 quintals and on C grade, the rent is 5 quintals of wheat.

50

35+15=50

40

35

30

20

20

5

10

15

15

15

15

X

A         B         C

Fig. 19.1                  Grades of Land

Related Economics Topics

This entry was posted in Economics and tagged , , . Bookmark the permalink.

Comments / Questions

No Comments or Questions yet be the first to comment.



Sorry, the comment form is closed at this time.


Possible Questions from this Topic :

1- What is The Ricardian Theory Of Rent?
2- Why is The Ricardian Theory Of Rent?
3- Where is The Ricardian Theory Of Rent used in Economics ?
4- Explain the theory of The Ricardian Theory Of Rent ?

You can find the Answers in the article above. (Questions written above are auto generated so English grammatical or structural errors are possible)