TYPES OF LAND RENT
After understanding the meaning of the term land rent, it will now be easier to state the types of Land rents that exist.
Economic Rent
This refers to the payment made for the use of the land alone.
It is an amount of money earned that exceeds that which is economically or socially necessary.
Gross Rent
This is the rent paid for the services of land and the capital invested in it.
For instance, if you have a business on a particular piece of land, you will be expected to pay gross rent.
Scarcity Rent
This refers to the price paid for the use of homogeneous land when its supply is limited in relation to demand.
If all land is homogeneous but demand for it exceeds its supply, the entire land will earn economic rent by virtue of its scarcity.
In this way, rent will arise when the supply of land is inelastic.
This is the cost of “using up” a finite resource because the benefits of the extracted resource are unavailable to future generations. Efficiency is achieved when the resource price—the benefit society is willing to pay for the resource today—is equal to the sum of the marginal extraction cost and scarcity rent.
Differential Rent
This refers to the type of rent which arises due to the differences in the fertility of land.
In every country, there are portions of land. Some lands are more fertile, and some are less fertile.
When farmers are compelled to cultivate less fertile land, the owners of more fertile land get relatively more production.
This surplus return that arises due to the difference in fertility of land is what is referred to as differential rent.
Contract Rent
This refers to the rent that is agreed upon between the landowner and the user of the land.
Based on some form of contract between the two parties, it may be a verbal or written contract agreement to avoid colliding later on.
