Quasi rent

1. QUASI RENT

2. QUASI RENT DR. LAXMI NARAYAN YADAV ASSISTANT PROFESSOR OF ECONOMICS GOVT. P.G. COLLEGE MAHENDERGARH E-mail: [email protected]

3. QUASI RENT The concept of  quasi-rent  owes its origin to Dr. Alfred Marshall. Marshall is of the view that a differential surplus which arises from a factor of production, whose supply is fixed for all times to come should be named as rent but a temporary gain which a factor or production earns due to temporary limitation of its supply should be called quasi-rent. . Quasi-rent is a temporary gain which is earned by a factor of production due to the temporary limitation of its supply .

4. QUASI RENT In the short run, machinery has no alternative use and therefore its supply will remain fixed in the short run. Thus, the transfer earnings of the capital equipment or machinery in the short run are zero. Therefore, the whole of the earnings of the machinery in the short run are surplus over transfer earnings and therefore represent rent. Professors Stonier and Hague rightly remark: The supply of machines is fixed in the short run whether they are paid much money or little so they earn a kind of rent. In the long run this rent disappears for it is not a true rent.

5. MEASUREMENT OF QUASI RENT Quasi Rent as Surplus over Variable Costs The variable costs must be recovered in the short run otherwise the production would be stopped. Whatever excess earnings over and above the total variable costs are made are ascribed to the machines (i.e. fixed factor).  Quasi Rent = Total Revenue Earned -Total Variable Costs

6. MEASUREMENT OF QUASI RENT Output O MC AC P E F M P 1 At price OP 1 : Average Cost = MN Average Revenue = Price = OP 1 = MF Hence Quasi Rent = FN N P 2 G P Q

7. Similarities Quasi rent arises when the demand for man made goods increases, while rent arises with the rise in the demand for the products of land. Just as the supply of man made appliances is fixed in the short period, so is that of land. Transfer earnings are as much important for determining quasi rent as they are for determining rent. Quasi rent like the rent of land is price determined and not price determining. Distinction Between Rent and Quasi Rent

8. Differences Rent is a payment for natural gifts of nature like land. Quasi rent is a payment for man made appliances like machines. As the supply of land cannot be changed, rent persists in both short run and long run. But quasi rent is a short run phenomenon which disappears in the long run when the supply of man made goods is increased. Rent is permanent in nature while quasi rent is a temporary phenomenon. Distinction Between Rent and Quasi Rent

9. Differences Rent is the difference between total revenue and total costs whereas quasi rent is difference between total revenue variable costs. Rent is regarded as unearned income. But quasi rent is a necessary payment which all factors of production receive due to their inelastic supply in the short run. Rent arises due to differences in fertility of land whereas quasi rent arises due to the scarcity of man made appliances in the short run. Rent cannot be zero but quasi rent can be zero when the short run price of the commodity equals its average variable cost. Distinction Between Rent and Quasi Rent