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The Ricardian Theory Of Rent

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Ricardian Theory of Rent- Classical theory of rent follows from the views of classical writers about the operation of the law of diminishing returns in agriculture. Classical authors like West, Torrents, Malthus and Ricardo, each of them independently formulated the theory of differential rent. However, the Classical model of rent presented and elaborated by Ricardo has become more popular, although most of these models are fundamentally similar considering the same idea of “land rent”. David Ricardo defines rent as follows, “Rent is that portion of the produce of earth which is paid to the landlord for the use of the original and indestructible power of the soil”. To understand the Ricardian model of Rent, you need to begin by understanding the …show more content…

It means that an additional unit of the factor can be employed by paying a higher price. The amount supplied is determined at point E, where the demand and supply curves interject. At this point OQ quantity of the factor will be supplied at price OA. The total factor earning is OAEQ. The area of the total factor earning consists of both Transfer Payment which is depicted in OQEH as well as Economic rent which is the area of the triangle HAE. There also exist two extreme cases where factor supply is perfectly elastic and perfectly inelastic as depicted below. Y Y T

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