Land In Economics
Land, in economics, an individual factor of production, differing from labour because it is non-human and from capital because no increase in price evokes an increase in total supply. It performs two functions as a factor of production; it furnishes space for economic activities and a site near the market for the product. Part of the explanation of the high rents of urban land is the high demand for space in or near the centre of the town or city, where sites are usually thought most desirable.
In the productive process, different areas of land have different attributes which affect theft productivity: e.g. climate, fertility, quality of the subsoil, water resources, location. Some pieces of land also have attributes that are exhaustible, i.e. consumed in the process of production. Mineral deposits and native forest are examples; soil fertility can also be reduced or exhausted by over-cropping or the use of primitive farming techniques.
Land in the economic some need not be 'terra firma' in the physical sense; land under water (such as oyster beds) and even large areas of surface water (e.g. if endowed with fishing rights) may be regarded as land in the economic sense. It is often convenient for the economist to analyse land as synonymous with all that nature supplies which is of value, durable and capable of being 'appropriated' (taken into ownership as property). This definition thus includes, for example, waterfalls and other sources of water power (without manmade improvements).
The economic definition of land also clearly distinguishes between land (as a 'natural' resource) and capital (in the form of man-made improvements). The distinction is analytical. Natural resources have no cost of production; their supply-price is zero in the sense that there would be no reduction in their available supply even if they earned nothing. Their earnings thus depend entirely on the extent of the demand for them and their relative scarcity. in practice the distinction is difficult to draw. In a developed country most 'land' incorporates, directly or indirectly, some man-made capital improvement, so that it is impossible to separate earnings into the two categories. Once constructed, man-made improvements that are 'sunk' into land (such as a building) are like land in the sense that their earnings depend on current demand for them rather than on their cost of production. But in the long run, when the supply of man-made improvements can be varied, so that it is possible to buy land with or without them, the distinction between land and capital is significant.
The value of a particular piece of land depends solely on the serviceability and scarcity of its attributes. Only in respect of especially favoured areas or pieces does land ownership or an exclusive right constitute a monopoly. An important city trading site for shops and the only important deposit of a rare mineral are possible examples of a monopoly type control of land. That a particular area of land is of high fertility or has advantages of situation, for example, confers only limited monopoly power on its owner if there are alternative sites, even though inferior. As long as consumers (or the goods whose production land facilitates) are free to move, land resources are better regarded as competing substitutes than as a collection of sites with unique characteristics that confer monopoly power on their owners. 61
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