Ricardian Theory of Rent - Grade 12 Economics
Overview
The Ricardian Theory of Rent was developed by classical economist David Ricardo. This theory is pertinent to agriculture production on land and is also referred to as the classical theory of rent. According to Ricardo:
- Rent is a portion of the produce of the earth paid to the landlord for the use of the original and indestructible power of the soil.
- Rent is a reward for the service of land, which has a fixed supply.
- Rent increases due to the original quality of land, which is indestructible.
Assumptions of Ricardian Theory
- Limited Land: There is a finite amount of land available for cultivation.
- Different Fertility of Land: Lands differ in their fertility, which affects rent.
- Law of Diminishing Returns: This law applies to agriculture, indicating that each additional unit of input yields less output.
- Cultivation Order: Superior land is cultivated first, followed by inferior land.
- Marginal Land: Marginal land receives no rent, as its production only covers the cost of production.
- Perfect Competition: There is perfect competition between landlords and tenants.
- Long-Run Concept: The theory is applicable in the long run.
Explanation
- Land Fertility and Rent: Land with higher fertility gets higher rent compared to less fertile land. The least fertile land is called marginal land or no rent land.
Example
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Consider the rent calculation for different lands:
- Land A: Rent = 80 - 20 = 60
- Land B: Rent = 60 - 20 = 40
- Land C: Rent = 40 - 20 = 20
- Land D: Rent = 20 - 20 = 0
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Extensive vs. Intensive Cultivation: While initially explained for extensive cultivation, the Ricardian theory is applicable to intensive cultivation due to the law of diminishing returns.
Visuals
- Diagrams and tables illustrate the calculation of rent based on land fertility and cultivation practices.
Conclusion
Ricardian theory provides a foundational understanding of how rent is determined in agricultural contexts, emphasizing the role of land quality and the underlying economic principles of supply and competition.
Publisher Details
- Published by: Sadikshya
- Published date: 02 Jul 2021
Additional Resources