For people who have not done Economics – at any level, there is a good chance that they may not know the meaning of ‘Rent’ – in economics, here is the explanation.
When you have got used to a certain annuity – generally undeservedly – the rent is threatened. Now if a shop is located in an excellent and upmarket location, the shop gets ‘rent’. Imagine a hair cutting saloon which was charging Rs. 30 for a hair cut in a upmarket location (about say 15 years ago). Now all the prices in that neighborhood would have gone up, because of inflation and generally because it is an upmarket area. To keep in line with the other services the ‘barber’ also keeps increasing the rates for hair cuts. However at a point of say Rs. 100 people start resisting. They complain, the crib, they try to reduce the number of hair cuts – but generally it is not a flexible purchase, is it?
So here if you pay Rs. 250 for a hair cut, YOU need to understand that the price is to be broken up as:
Labour charges 25
Now how much of the rent is justified is decided by the market. The existing saloon may just sell off and a new guy may start a new business in the same place. Funnily this will increase the rent for an already existing saloon (which is within an easy reach in the same catchment area!).
We had a caterer who used to run our office canteen. He was not a great cook and the food used to be all right to bad. Then we went from one location to two. He started catering to the second office also.
One fine day he decided to hand over the canteens to 2 of his ‘friends’ – and the company did not object. After 4 months one of the new ‘contractors’ told us ‘that guy charges me Rs. 200 and charges the other guy also Rs. 200 per DAY as rent’. The justification is “I introduced you to a business, so I deserve it”…now THIS Rs. 400 is also RENT.
Welcome to economics! well come to rent!
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