According to David Ricardo Rent arises due to the ace in fertility. Rent is the differential surplus. This is the nee between , the returns of two different grades of land, his rent theory is known as differential rent, the other modern economists like Prof. Boumol and Mrs. Joan Robinson National Income Accounting elementary Economic not because of the difference in hold their opinion that rent arise no because of the difference in fertility but because of the scarcity of land in relation to its demand fertility but hold their opinion that rent arises not because of the difference in fertility but because of the scarcity of land in relation to its demand Land yields rent because the supply of the most fertile land is scarce in relation to demand.
According to Prof. Mrs. Joan Robinson Rent is the revenue over and above the transfer earnings of a factor, The transfer earnings is the minimum supply price below which no factor will offer their service. Transfer earnings are the earnings of a factor of production in its next best use or, occupation. It is the minimum payment that must be paid to a factor, in order to retain in the present use.
In regard to the rent and price David Ricardo and the modern ec6nomists have given different of opinion. According to Ricardo, rent does not enter into price. He says rent is not priced determining but it is Price-determined. David considers the supply of land as socially fixed.
Being the free gift of nature land has no cost of production. Thus whatever returns it yields goes to constitute rent is over and above cost of production. Thus it has no relevance with price. According to him price is determined by the cost of production of marginal land. Rent does no affect price. Ricardo says that corn is not high because a high rent is paid. Rent is paid because corn is high. As against David Ricardo, modem economists contend that rent being a part of cost of production determines price.
Modern economists consider land from the individual point of view. For an individual the supply of land is not inelastic. He buys land to produce something only then rent being a part of cost of production determines price. Ricardo opines that rent is price determined and modern economists believe that rent is price determining. Modern economists argue that in the following cases rent does enter into price.
(i) In case of perfect competition rent does not enter into price. But in reality land is owned by a few landlords who compel the farmers to pay rent even on marginal land. In such a case the cultivator consider such rent on a part of his cost. This while fixing price, he adds rent into price.
(ii) Price is affected by rent as people over depend on the cultivation of land. The farmers compete with each other. The owners of land are in advantageous position to bid up rents. Thus the farmer offers more over and above the economic rent. This rent affects price.
(iii) Fertile land is scarce. In such a case rent arises due to, scarcity. The rent becomes a part of cost of production. Here rent determines how much land will be put to use. The relative scarcity of land determines price.
(iv) For society the quantity of land is fixed. It is a free gift of nature. As it has no cost of production, the whole of its earnings constitute rent and hence rent does not enter into price. But for Individual point of view, land has cost of production. Being-a part of the cost of production it determines price. Hence rent enters into price.
(v) According to the morden economists rent does enter into price it the price paid for the use is more than the transfer earning nit the rent paid above this transfer earning does not enter into price.