Differential Rent
How this surplus arises may be illustrated by an example. Suppose, in a country, there arc four kinds of land – 1\, B. C and D. Some pieces of land are more fertile than other and some areas are more advantageously situated as regards centres of population and means of transport. etc. But taking allthc factors into consideration, Ict us suppose that wc have four grades of land as mentioned above, so that land A is the most superior and B. C and D arc Znd, Jrd and 4th grade lands. respectively. Further. suppose that standard units of labour and capital called “doses” of labour and capital, when applied to these categories or land, produce wheat as given in the following table suppose class lallt enough and to spare and it can meet the entire demand for food at the prevailing price. In this situation, land will command no rent.
It ill he like a [icc gift or nature. support that population has increased to such an extent that the whole of the class A land is brought under cultivation, and still it is not enough to meet the increased demand for food. In order to meet the growing demand for food, more labour and capital will be put into lands of class A. and lands of class B will also be brought under cultivation. This will happen only when the price of wheat rises so much as to make it worthwhile putting one more dose (i.c .. two doses in all) of labour and capital into land A and putting first dose of labour and capital into land B. In other words. according to our table above. 9 quintals of wheat must sell for as much as is the cost of second dose of labour and capital. The price of 9 acquittals of wheat produced on land B is equal to the cost of labour and capital put in this land for producing this quantity. Since the price of wheat produced on land B just covers the cost of production on this land. there is no surplus and hence no rent. In other words. B is the no-rent land. But on lands of class A. two doses of labour and capital give a return of 10 + 9 = 19 quintals of wheat are enough to pay for the two doses. Hence, one quintal of wheat is the surplus on land A. Thus. cultivators of land can either cultivate 13 class lands free of rent and get 9 quintals of wheat per dose of labour and capital per acre, or they can pay one quintal uf wheat (or its equivalent in money at the, prevailing price) per acre to the owners of land A as rent. By applying one more dose of labourand capital per acre of land. they can obtain 19 quintal f wheat (i.e., by applying two doses in all). The application of second dose on A class land yields 9 quintals of wheat per dose uf labour and capital. If there is perfect competition, at this stage. this rent one quintal per acre) for A class lands is hound to he established. but B is no-rent land.