ABSTRACT
One conceives of rent as a payment in excess of that necessary to maintain a factor in its current occupation. The other would describe it as the difference between the factor’s current earnings and its ‘transfer earnings’—the latter term denoting its earnings in the nextmost highly paid use.Aswe shall see, the first type of definition is ambiguous because of the quantity constraint. The second type of definition is even more restricted, however, as its validity would require that, in the choice of occupation, men are motivated solely by pecuniary considerations. Indeed, it will transpire that, like consumer surplus, rent is a measure of change in a person’s welfare and, again like consumer surplus, can have both a CVand an EVmeasure.1
2 As with the treatment of consumer surplus, our first recourse will be to the indifference map. Figure A7.1 indicates four quadrants of a diagram in which money income Y is again measured vertically, and the good L (which can be thought of as labour services) is measured horizontally. Any horizontal distance to the right of the originOwouldmeasure the amount of L acquired by the individual; any horizontal distance to the left of the origin, the amount of L given up. Similarly, any distance above the origin measures the amount of income acquired, and any distance below it the amount of income given up. As distinct from the consumer
