Modern Rent Theory

By Bharat Choudhary -
In Economics,"The concept of rent or to be more precise 'economic rent' is used in a special sense. According to the classical economists, rent is a price of land. It is a payment made by a tenant farmer to the landlord for the use of original and Indestructible powers of the soil". 

Modern Concept of Rent Theory is different from above old definition in a manner. 




The modem economists do not use the concept of economic rent in the restricted some. They apply rent to all the factors of production which do not have a perfect elastic supply.
Rent in modern sense can arise in respect of any factor of production, and not merely land. Rent is a surplus. In the sense of surplus, economic rent is a payment in excess of transfer earnings.
An Example:
A typist is ready to work for $4600 per month in a college but he is paid $4900 per month. This is because of the fact that the market demand for the typists is greater than its supply. So long as the supply cannot be adjusted to demand the typist will continue earning a payment in excess of $4600 of the amount which is necessary to keep him in that occupation. This monthly surplus money of $300 (4900 - 4600 = $300) is an economic rent.

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