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Situational Rent
Land may be described as inferior either because it is less fertile or it is unfavorably situated. As Ricardo stated, “the most fertile and the most favorably situated land will be cultivated first. If all lands are equally fertile rent will not arise unless a particular land enjoys advantage of situation”.
Thus according to Ricardo rent is due both to differential fertility as well as differential situation. The fact of the matter is that situation directly influences the paying lower transport charges earn situations near the market and a truck load of corn cost $ 200, 300, 400 and 500 respectively rent in the case of land A, B and C will be $ 300, 200 and 100. D grade land will however earn no rent.
Fig. shows a “land-rent triangle” which demonstrates that all the margin a makes no profit as the producer price is just equal to the costs of production and transportation. However for those who are located near the market they does exist some surplus which may be treated as rent.
In fig. OA is the cost of production per unit of output whereas the competitive market price. As distance from the market increases the cost of transportation per unit of output increases too. This will eventually wipe out the initial difference between the market price and the cost of production. The “land-rent triangle” is closed at B. at this point the producers makes no pure transportation cost increases with distance and wipes out the difference between the price and production cost.
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Thus according to Ricardo rent is due both to differential fertility as well as differential situation. The fact of the matter is that situation directly influences the paying lower transport charges earn situations near the market and a truck load of corn cost $ 200, 300, 400 and 500 respectively rent in the case of land A, B and C will be $ 300, 200 and 100. D grade land will however earn no rent.
Fig. shows a “land-rent triangle” which demonstrates that all the margin a makes no profit as the producer price is just equal to the costs of production and transportation. However for those who are located near the market they does exist some surplus which may be treated as rent.
In fig. OA is the cost of production per unit of output whereas the competitive market price. As distance from the market increases the cost of transportation per unit of output increases too. This will eventually wipe out the initial difference between the market price and the cost of production. The “land-rent triangle” is closed at B. at this point the producers makes no pure transportation cost increases with distance and wipes out the difference between the price and production cost.
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