Business, Legal & Accounting Glossary
The rent a real estate property would generate if leased.
Economic rent is a measure of money received by owners of factors of production for its use. Land, labour and capital are primary factors of production. Economic rent is minimum monetary compensation that has to be offered to an owner of a factor of production, for use of that asset. For instance, with labour, economic rent is equivalent to its reservation wage. [It is that minimum wage amount, which a person needs to work].
Economic rent is distinct from the concept of profit, rather it encompasses the concept of ‘opportunity cost’. If opportunity costs are totally ignored then economic rent of a factor of production is its revenue less costs.
Land is a natural resource, which has a fixed supply. Perfectly inelastic supply is a special characteristic of land, which has interesting ramifications in supply-side market conditions for determination of rent. Land is devoid of any production cost. Hence demand is solely responsible for determination of its quantity of rent, in this model of economic analysis. As a corollary to this proposition, it implies that factors, which lead to a change in demand for land automatically control its rent determination mechanism.
Demand for land in its turn is affected by the following factors.
From this point of view, land rent is essentially a surplus.
A company or business organization is said to indulge in rent-seeking behaviour when it makes use of its resources to garner economic gains from others without reciprocating back any benefits to society at large. Rent-seeking behaviour of companies is exhibited in the modern-day world when they rally to form lobbies for pressurizing governments for issues like loan subsidies, tariff protection and grants. These kinds of activities do not lead to any wealth creation for social benefits. They merely lead to a redistribution of resources from taxpayers to special interest groups.
You need to try and make sure that you are making the right decision before you enter into economic rent.
The economic rent can be viewed as the alternative choice forgone as we had a win-win situation with our asset.
Though he was letting his unemployable brother stay at his second home for free, Eric was responsible for paying taxes on the fair economic rent amount for the area.
rent seeking
quasi-rent
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Economic Rent are sourced/syndicated and enhanced from:
This glossary post was last updated: 30th October, 2021 | 0 Views.