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Quasi Rent
The concept of quasi rent was introduced in economic theory by Marshall’s concept of quasi rent is the extension of the Ricardian concept of rent to the short run earnings of the capital equipment which are in inelastic supply in the short run. The distinguishing characteristic of land in fact that its supply is perfectly inelastic, changes in its price and therefore its earnings depend mainly upon the demand for it. But, in the short run, the fixed capital equipment such as machinery is likewise perfectly inelastic in supply and cost of its production is not relevant once it has been produced. During the short period, the earnings of specialized capital equipment depend mainly upon demand conditions and are thus similar to land rent and have therefore been called rent by Marshall. Since the capital equipment is not permanently in fixed supply like land and instead their supply is very much elastic in the long run, Marshall preferred to call their earnings in the short period as Quasi rent rather rent.
The quasi rent is only temporary surplus which is joined by the owner of the capital equipment in the short run due to the increase in demand for it and thus this will disappear in the long run due to the decrease in the supply in the capital equipment in response to the increase demand. In the short run, specialized machinery has no alternative use and therefore its supply will remain fixed in the short run even if its earnings fall to zero. Therefore, the whole of the earnings of the capital equipment or short run are surplus over transfer earnings and therefore the machinery in the maintenance cost are required to be represented rent. It may, however, be pointed out that some maintenance costs are required to be incurred in the short run to keep the machinery in the running order. Therefore, more precisely, the quasi rent may be defined as the short run earnings of a machine minus the short run cost of keeping it in running order.
There is reason to believe that quasi rent will be generally earned in the short run by the capital equipment like machinery, building etc. this is because, however keen the competition between entrepreneurs may be, the supply of capital equipment cannot be increased in the short run.
Consequently, when very high earnings are being made from capital equipments they will not be competed away in the short run. But in the long run the position regarding the supply of capital equipment is quite different. Capital equipment are manmade instruments of production and therefore their supply can be increased demand for them. Thus, as a result of the increase in the long run to meet the increased demand for earnings will be competed away. In the long run, therefore, the competitive equilibrium is reached when the earnings from the capital equipment are just sufficient to maintain them in running order and provide only normal profits to entrepreneur. Thus in the long run no surplus over cost of production is earned by the machines. Therefore, quasi rent will disappear in the long run competitive equilibrium. Professor Stonier and Hague rightly remark, “the supply of machines is fixed in the short whether they are paid much money or little so they earn a kind of rent. In the long run this rent disappears for it is not a true rent, but only an ephemeral reward-a ‘quasi rent’.
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The quasi rent is only temporary surplus which is joined by the owner of the capital equipment in the short run due to the increase in demand for it and thus this will disappear in the long run due to the decrease in the supply in the capital equipment in response to the increase demand. In the short run, specialized machinery has no alternative use and therefore its supply will remain fixed in the short run even if its earnings fall to zero. Therefore, the whole of the earnings of the capital equipment or short run are surplus over transfer earnings and therefore the machinery in the maintenance cost are required to be represented rent. It may, however, be pointed out that some maintenance costs are required to be incurred in the short run to keep the machinery in the running order. Therefore, more precisely, the quasi rent may be defined as the short run earnings of a machine minus the short run cost of keeping it in running order.
There is reason to believe that quasi rent will be generally earned in the short run by the capital equipment like machinery, building etc. this is because, however keen the competition between entrepreneurs may be, the supply of capital equipment cannot be increased in the short run.
Consequently, when very high earnings are being made from capital equipments they will not be competed away in the short run. But in the long run the position regarding the supply of capital equipment is quite different. Capital equipment are manmade instruments of production and therefore their supply can be increased demand for them. Thus, as a result of the increase in the long run to meet the increased demand for earnings will be competed away. In the long run, therefore, the competitive equilibrium is reached when the earnings from the capital equipment are just sufficient to maintain them in running order and provide only normal profits to entrepreneur. Thus in the long run no surplus over cost of production is earned by the machines. Therefore, quasi rent will disappear in the long run competitive equilibrium. Professor Stonier and Hague rightly remark, “the supply of machines is fixed in the short whether they are paid much money or little so they earn a kind of rent. In the long run this rent disappears for it is not a true rent, but only an ephemeral reward-a ‘quasi rent’.
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