Question

Explain how Modern theory of Rent is an
improvement over Marshall’s theory of rent

Answer 1

Modern theory of rent is an improvement or modification over the Ricardian theory of rent. Economists like Marshall, Mrs. Joan Robinson and Bounding contributed to the ideas of rent which is called modern theory of rent. Ricardo's theory explains why one land commands higher rent than another. But it fails to answer who rent arises. The modern economist’ has evolved a theory called the scarcity rent.

Scarcity rent is the modified version of the demand and supply applied to land. According to the modern theory, rent arises due to the relative scarcity of land in relation to its demand. The greater the demand for land the higher shall be its rent. Thus Rent is the resultant of the interaction of the forces of demand and supply in relation to land. The modern theory of rent is also called on the demand and supply theory