Meaning of Quasi-Rent
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Meaning of Quasi-Rent

Meaning of Quasi-Rent The concept of quasi-rent was first introduced by Marshall. Quasi-rent, according to him, is the surplus earned by instruments of production other than land. The term 'rent' is applied to income from land and other free gifts of nature but quasi-rent to the income derived from appliances and machines which are the product of human effort. Quasi-rent stands for whole of the income which some agents of production yield when demand for them has suddenly increased.

Meaning of Quasi-Rent

The concept of quasi-rent was first introduced by Marshall. Quasi-rent, according to him, is the surplus earned by instruments of production other than land. The term 'rent' is applied to income from land and other free gifts of nature but quasi-rent to the income derived from appliances and machines which are the product of human effort. Quasi-rent stands for whole of the income which some agents of production yield when demand for them has suddenly increased. It is earned during the period that their supply cannot he increased in response to increase in demand for them. Hence, it is a short-period concept.

For example, when a war is going on, it is not possible either to make more machines in such a short time, or to import machines from foreign countries which may be busy in their own war preparations or because there is danger at the sea. If under these circumstances, more machines cannot be installed, the existing machines will be able to earn exceptionally large incomes for their owners. This is so because during a war demand for goods increases abnormally and people feel all -round scarcity.

However, these abnormal profits will not last long. When the abnormal conditions are over, the number of machines will be increased, then the incomes from machines are bound to decrease.

In short, quasi-rent is applied to the very large incomes which the owners of a factor of production come to enjoy on account of the temporary scarcity of such a factor.

We can apply the concept of transfer earnings also to explain quasi-rent. In the short run, specialized machinery must remain in its present use. It cannot be transferred to any other use. This means that its transfer earnings are zero. Hence, in the short run, the whole of the earning of machinery and capital equipment is a surplus over transfer earnings and is rent. But it is called quasi-rent because it is temporary. Their supply during the short period is fixed, and cannot be increased howsoever keen the demand may be. The surplus will, therefore, continue to be earned and cannot be competed away. But, in the long run, the supply can be increased and the surplus earnings will disappear. This cannot happen in the case of land whose supply is perfectly inelastic and is permanently fixed. Hence, rent of land will persist in the long run.

Quasi-rent has also been defined as the excess of total revenue earned in the short run over and above the total variable costs.

Thus, Quasi-rent = Total Revenue — Total Variable Cost.

In the long run, all costs are variable and in the long-run competitive equilibrium, total receipts are equal to total costs (including normal profit), there are no excess earnings over and above costs and hence no quasi-rent.

Difference between Rent, Interest and Quasi-rent

The term 'rent' is applied to income from land and other free gifts of nature, and quasi-rent to the income derived from man-made appliances.

The term 'rent' is applied to incomes from those factors of production which are permanently limited. On the other hand; quasi-rent is applied to the incomes from those factors which have become temporarily limited on account of some abnormal conditions.

It should, however, be remembered that distinction between rent and quasi-rent and, in fact, the return on any other factor of production, is only matter of degree.

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