Economic Rent - Definition, Formula and Examples

By Niti Gupta on wallstreetmojo.com

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Economic rent refers to the amount paid to the owner of a factor of production over the cost that is necessarily incurred on utilizing such elements in the production process. Economic rent can arise when a certain set of producers in the market have access to some important financial information that others are not having, or they are technologically more advanced than the other producers in the market. It is calculated by deducting the free market price from the agreed price of the factor of production. Economic rent can be seen in salaries, facilities, and other areas of the economy. It is different from profit, as it is the income earned by the owner more than what he expected to achieve or what he should reasonably make as per the market forces.