The usual notion is that economic rent is one of the factors in setting price. This notion, however, is incorrect. Economic rent does not determine price; rather price is the chief factor in determining economic rent. It will be remembered that our island farmer who cultivated the best soil enjoyed a constantly increasing economic rent as the increasing demand for wheat forced the price upward. We assumed that his economic rent was twenty bushels of wheat per acre. Had his economic rent been thirty bushels instead of twenty it is not likely that the price of wheat would have been materially affected, for, as we have seen, the demand for wheat caused the price to be set at a point which would permit of the cultivation of the no-rent piece of land.
When contract rent equals economic rent - the two always tend to approximate - the former likewise does not enter into price. Hence the retail store utilizing the best site can sell as cheaply, all other things being equal, as its competitor on a poorer location. It is a well-known fact that one of the large variety-store companies will not locate in a city unless it can secure a relatively high-rent site. Similarly, the high contract rents paid by tenants on the rich soil of Iowa or Illinois do not affect the prices of their products.