Rent exist in other factors of production- Discuss.
As per the modern theory, Rent is actually the difference between the actual income of factor of production and the transfer earnings. Apart from rent, income from other factors of production may have a rent element and can be explained with the help of transfer earnings or opportunity costs.
Rent element in wage
In determining the wage of labour engaged in a particular job, one has to consider what wages the labour could have earned in alternative jobs. Any skilled labour will want the wages in a particular job to be higher than what is or can be obtained elsewhere. That is, the wages should be more than the transfer earnings. In this case, the element of rent is observed in wages.
Rent element in interest
Capital investors consider opportunity costs or transfer earnings in making a particular investment. Capital investors are encouraged to invest in a particular investment if they receive more interest or return than what would have been earned by investing the capital elsewhere. So, the interest earned on capital investment should be more than the alternative income or transfer earning. Again, before investing capital in a particular investment, the cost of investing elsewhere is also considered as the opportunity cost of investing capital. Thus, it appears that income from capital investment i.e. interest also has an element of rent.
Rent element in profit
Transfer earning and opportunity cost are always accounted for before an entrepreneur invests capital under risk and uncertainty. If the entrepreneur has several alternative opportunities in determining the investment policy, he will consider the transfer earning and opportunity cost in different cases before bearing the burden of risk and uncertainty so that the probability of profit in the particular investment is greater than the transfer income. Therefore, profit also has a rent element.
So, from the above discussion, it is clear that all factor income can have a rent element.
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