We may assume, to continue our island illustration, that the ten families compete among themselves for the one fertile piece of wheat land to the point where the family which secures it merely gets return for the labor and capital employed in its cultivation. Under these circumstances this land, though it was the most fertile or the best located piece on the island, is no-rent land; that is, it yields no rent either to its owner or to its cultivator. In Fig. 9 we see graphically the effect of increasing demands for wheat in our island settlement. When the settlement was first made the price of wheat was OL per bushel while the cost of raising it (interest and wages) was the same; that is, it was produced on no-rent land. Just as soon, however, as an increased demand for wheat compelled the utilization of a poorer piece of land (poorer either in fertility or in location) for wheat-growing, the price per bushel was necessarily raised. Otherwise, no one could afford to raise wheat on a poorer piece of land, for the cultivator of the best piece was merely getting a normal return on his capital and labor. The rise in price per bushel gave the wheat-grower on the best piece of land a surplus over his outlay in the form of wages and interest. This surplus we call economic rent. Its size is determined by the difference between his capital and labor costs and the capital and labor costs of the second cultivator, who utilizes no-rent land. Let us suppose, further, that an increase in population causes five other pieces of land to be utilized at varying costs in the way of interest and wages (represented by the solid vertical lines A, B, C, D, and E). Clearly, the price per bushel would have to be fixed at not less than E. Then the surplus per bushel (economic rent) going to our first farm would be LQ; to the next best piece, G (MQ); to the third, H (NQ); to the fourth, I (OQ); and to the fifth, J (PQ).

Fig. 9.

Fig. 9.

Usually we think of differences in yield per acre rather than differences in the capital and labor costs per bushel. Let us suppose that five cultivators, each using exactly the same amount of labor and capital on equal-sized pieces of land, produce the following numbers of bushels per acre: 40, 32, 30, 25, and 20. Since the fifth man will not farm without getting a return for his interest and wages, we may conclude that twenty bushels of wheat per acre equals in value the outlay of each farmer. Hence the economic rent of the five pieces, measured in bushels, is 20 (40-20), 12 (32-20), 10 (30-20), 5 (25-20), and 0 (20-20).