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Eco Economics

EconomicsNEB 2076 (old course)

What is economic rent? GROUP: A Long answer questions 2 × 10 = 20

2

Answer

· Based on the official syllabus and past papers
Updated
Quantity of Land (units)Price (per unit)OLand Supply (Perfectly Inelastic)Demand for LandEQ*P*
Economic rent is the shaded area: the difference between what a factor earns and its minimum supply price.

Economic rent refers to the payment made to a factor of production (usually land) above its minimum supply price (the price at which the factor would be willing to supply). It arises due to the fixed or inelastic supply of certain factors (e.g., land, natural resources) and their high demand.

Key features:

  • Not a cost of production: Unlike wages or interest, economic rent does not require the factor to be paid to supply it.
  • Pure surplus: It is the difference between the actual earnings and the minimum earnings required to keep the factor in its current use.
  • Example: If a farmer earns ₹100 per acre but would accept ₹50, the ₹50 difference is economic rent.

In the diagram, the shaded area (₹50 × 50 units) represents the total economic rent received by landowners. It reflects the scarcity value of the factor.

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