Distinguish Between Absolute Rent, Monopoly Rent, and Ricardian Rent.
In economics, rent is any monetary collection that exceeds the value, which is assumed economically or socially necessary. Economic rent can arise in various situations, for example, when a buyer trying to attain an exclusive offer on a product or service makes an offer without even hearing what the seller considers acceptable. On the other hand, economic rent can also arise when producers in a competitive market have asymmetric information.
Absolute Rent is a type of economic rent. Regarded as capitalist land rent, it emerges when a landowner appropriates a surplus value created by the wage laborers doing agriculture due to the monopoly of private property on the land (Sharyi et al., 2018). Absolute rent does not depend upon the locations of the land, the productivity of the capital investments, or the differences in fertility. On the other hand, private, legal landowners allow their lands to be used in return for compensation, which generates rent. Absolute rent is collected even from the least productive or profitable land, although such a land determines the market value. Conversely, it reflects the differences between the social value of the products provided by agriculture.
The second type of rent is the monopoly rent by which economic rents are gained due to monopolies (Aidt, 2016). It can result due to certain qualities of an asset, as well as denial of access to purchase. Some examples of monopoly rent include the rents gained from intellectual properties through copyrights and patent, rent linked with the network effects of platform technologies, and monopolies of private or public utilities. In agriculture, monopoly rent is gained from the cultivation of rare crops, which are unique assets available only to a few. As the production of these rare commodities are suited for only a limited amount of land, and it is high in demand, the producers can market the products at a higher price for a particular time frame. In such cases, the landowner is able to rent the land for a very high payment as well. Firms that restrict their supply and increase the prices of the product without having to worry about attracting the customers to earn monopoly rents. Where the difference between long-run marginal cost and price determines economic rent, the sum of the differences of the sold units is a measure of monopoly rent.
On the other hand, the Ricardian rent results from the possession of a human-made or natural infrastructure. Ricardian Rent exists because of differences in the fertility of the soil and scarcity of land as a factor (Schneider, 2016). Accordingly, the Ricardian theory of rent assumes that the rate of the land arises because of the differences in the fertility level of the soil or the overall situation of the land. In addition, Ricardian rent pays emphasis on the diminishing marginal returns concerned with land cultivation. In other words, the different levels of the fertility generate different types of produce, and accordingly, the produce from the inferior plot of land diminishes even when the total cost of production remains the same in every plot.
Aidt, T.S., 2016. Rent seeking and the economics of corruption. Constitutional Political Economy, 27(2), pp.142-157.
Schneider, M., 2016. 9 The ‘Ricardian’theory of rent. Reclaiming Pluralism in Economics, p.133.
Sharyi, H., Dubishchev, V., Kobets, S. and Kariuk, A., 2018. Мanaging Landed Capital: Methodology and Procedure of Absolute Rent Calculation. International Journal of Engineering & Technology, 7(4.8), pp.209-213.