Quasi-rent
is like economic rent, but usually larger, because it is the excess of return
over short run opportunity cost, which does not include the fixed cost of
replacing or duplicating fixed assets such as a piece of capital or an
invention. Thus, infra-marginal rent.
For
example at the time of creation of Bangladesh, the demand for houses increased
owning to increase in population. But the supply could not be increased because
of the sacristy of building materials. For the time being, their supply was
much limited as that of land. Rent rose. This abnormal increase in the return
on capital invested in building is nothing but Quasi-rent.
The term quasi rent is not new to the
economists. This is basically an analytical term which is used for the income
earned as a result of the opportunity cost
after investment. Usually it so happens that the individuals face the loss of
cost investment and their payment may be sunk. The amount earned after such a
loss is called as the quasi rent. The term of quasi rent is not too old and it
was used for the first time by Alfred Marshall. He was the first economist to
earn quasi rents. Income one earns on a sunk cost.
A quasi-rent occurs when one makes an investment
and pays for it, and then earns income from it without needing to make further
investment. In order to be considered quasi-rent, the income must exceed the opportunity
cost of the investment. Quasi-rent has also been defined as the excess of
total revenue earned in the short run over and above the total variable costs.
Thus, Quasi-rent = Total Revenue — Total Variable
Cost.
In the long run, all costs are variable and in
the long-run competitive equilibrium, total receipts are equal to total costs
(including normal profit), there are no excess earnings over and above costs
and hence no quasi-rent. However, these abnormal profits will not last long.
When the abnormal conditions are over, the number of machines will be
increased, then the incomes from machines are bound to decrease.
In short, quasi-rent is applied to the very large
incomes which the owners of a factor of production come to enjoy on account of
the temporary scarcity of such a factor.
Economic value of quasi rent
Generally the
quasi rent also sometimes referred to as the economic rent is defined as the
difference between the incomes obtained from a certain factor of production and
the cost of the factor which is used in bringing the production in particular
use. There are many applications of quasi rent. Either it is used in bringing
the factor of quasi rent into economic use or it can also be applied in using
the factor for the purposes of opportunity cost.
Investment of quasi rent
In general the
quasi rent is defined as the difference between the income earned as a result
of the currently used factor and the minimum cost which is required to draw the
quasi factor for a particular use. The value of opportunity income is the most
important while practicing the quasi rent. Basically the opportunity cost of
income is the current income subtracted by the available income being used in
next best factor. This factor is used during the particular use in future.
Nowadays there are many examples where the capital investments are made out of
the quasi rent cost investments. This usage is recorded in almost all of the
specialized or unspecialized capital equipment.
In case of the investment of sunk cost, the amount required to draw the result for an economic usage is minimal. On the other hand the true quasi rent is the income which is in excess and it is also required in order to make the remaining factor much productive. Sometimes the quasi rent may also include the sunk cost investment.