Quasi Rent
Quasi Rent
The doctrine of quasi rent was introduced by Marshall and extended by Ricardo’s theory of land rent to other factors fixed in supply during the short period. It refers in Marshall’s words to “income derived from machines and other appliances made by man.” There are certain durable factors whose supply cannot be increased or decreased during the short period. Machines, ships, houses and even human ability like land are fixed in supply but only in the short run. When the demand for them increases, their supply being fixed they earn a surplus which is not rent but is like rent as their supply can be increased in the long run. Marshall preferred to call it quasi rent.
Distinction Between Rent and Quasi Rent
Similarities
Quasi rent and interest are also related to each other.
In reality, the distinction between the rent, quasi rent and interest is one of grade only. A factor which is permanently fixed irrespective of the time period earns rent; that which is permanently fixed for a short period earns quasi rent and that which is not fixed at all in any period earns interest.
“Each group shades into other gradually, as pointed out by Marshall,” “and thus even the rent of land is seen, not a thing by itself but as the leading species of a large genus.”
Distinction Between Rent and Quasi Rent
Similarities
- Quasi rent arises when the demand for man made goods increases, while rent arises with the rise in the demand for the products of land.
- Just as the supply of man made appliances is fixed in the short period, so is that of land.
- Transfer earnings are as much important for determining quasi rent as they are for determining rent.
- Quasi rent like the rent of land is price determined and not price determining.
- Rent is a payment for natural gifts of nature like land. Quasi rent is a payment for man made appliances like machines.
- As the supply of land cannot be changed, rent persists in both short run and long run. But quasi rent is a short run phenomenon which disappears in the long run when the supply of man made goods is increased.
- Rent is permanent in nature while quasi rent is a temporary phenomenon.
- Rent is the disparity amidst total revenue and total costs. Conversely, quasi rent is difference between total revenue variable costs.
- Some economists regarded rent as unearned income. But quasi rent is a necessary payment which all factors of production receive due to their inelastic supply in the short run.
- Ricardo’s rent arises due to differences in fertility of land. Marshall’s quasi rent arises due to the scarcity of man made appliances in the short run.
- Rent cannot be zero but quasi rent can be zero when the short run price of the commodity equals its average variable cost.
Quasi rent and interest are also related to each other.
- Quasi rent is the return on sunk or specialised capital, rent is the return on free or floating capital.
- Quasi rent arises in the short run, while interest arises both in the short run and long run.
- The supply of fixed capital cannot be increased except in the long run but the supply of free or floating capital can be increased in the short run and the long run.
- Quasi rent is price determined, while interest is price determining.
- Quasi rent is an unnecessary payment during the short run because fixed capital already exists in the firm. It does not necessitate any extra costs. Hence quasi rent is not a part of the cost of production. Interest is a necessary payment and enters into the cost of production.
In reality, the distinction between the rent, quasi rent and interest is one of grade only. A factor which is permanently fixed irrespective of the time period earns rent; that which is permanently fixed for a short period earns quasi rent and that which is not fixed at all in any period earns interest.
“Each group shades into other gradually, as pointed out by Marshall,” “and thus even the rent of land is seen, not a thing by itself but as the leading species of a large genus.”