The definition of land in the economy is interpreted in a broad and narrow sense. In the latter case, we are talking about specific areas of the territory. In a broad sense, land in the economy is a complex of natural resources that can be used to create services, goods, and other values. Let us consider this concept in more detail.
Earth as a factor of production
In the economy there are several production factors. First of all, it’s work. The use of labor brings income. Another factor is capital. These are the funds that business entities invest in their production. The third factor is land. It is of particular importance for production. Meanwhile, it is impossible to give an exact answer to the question “what is more important for the economy: land or capital”. All production factors are equally important for the economic system.
Each resource used in economic activities has its own characteristics. Land in the economy is a unique resource. Its main distinguishing feature is the limited area. Moreover, a person cannot change it himself. Capital or labor are more flexible factors. They are subject to change.
Without land, no activity can be conducted. Accordingly, ownership of natural resources is considered the most profitable. Land in the economy is the main means of production. In this case, the income is not so much extracted when it is sold as when it is transferred for use.
The properties
There are different sectors in a country's economy. Land as a means of production is most actively used in agriculture. It grows crops that come to consumers.
Of course, in order for the resource to generate income, it must possess a number of properties. If we talk about agricultural activity, the fertility of the land is of great importance. It, in turn, is determined by the chemical and mechanical properties of the soil. A person can change fertility in a certain way. For this, mechanical processing is used, various fertilizers are introduced.
Depending on human participation, artificial and natural fertility are distinguished. Meanwhile, the natural properties of the earth are considered basic. They are of particular importance to the owners, determine the nature of the profit that the owners derive from the resource.
Another important property of land in the economy is its location relative to the market.
Of no small importance are weather, climatic conditions, topography, type of soil. They, like fertility, vary by region.
Principle of diminishing returns
It is worth noting that human influence on the properties of natural resources is not unlimited. One day there will come a moment at which the additional return arising from the additional application of capital and labor will be substantially reduced. As a result, a person will cease to receive income in the same volume. This pattern is called the principle of diminishing returns. For a better understanding of its essence, the following wording can be given:
"Each increment of labor and capital that is invested in cultivating the land entails a proportionally smaller increase in the volume of output, if it does not coincide with the improvement of agricultural technology."
Rent
The concept of the land market is considered the core of the theory of renewable resources in the economy. The use of land as a production factor leads to the emergence of such a thing as "rent."
It should be understood as a kind of payment for the resource for the user and a special type of income for the owner.
Differential rent
As you know, the sites vary significantly in quality, location. However, it is necessary to take into account the limited land fund.
A more advantageous position is for those entities that operate in medium and better areas. Their costs are much lower than those of industries operating on the worst lands. Accordingly, the first group of entities may receive additional income. It is called differential rent I. The main reasons for its occurrence are the advantages of the territory, due to greater fertility or better location.
As mentioned above, there is natural and artificial fertility. The second is also called economic. It is associated with additional investments in the resource and expresses the intensity of the development of agricultural activity. Additional investments of subjects pay off with different efficiency. The income received from investments and ensuring the intensive development of production activities is called differential rent II.
Net profit
In a market economy, the concept of "nobody's land" is absent. Each site has an owner. At the same time, even the worst put on, no owner will give for free neither for rent, nor for possession.
The income received from all lands without exception is called absolute (net) rent. It is the result of inelastic supply in the conditions of the existence of private ownership of land. Simply put, net rent is a kind of tax that the owner levies on the whole society through the mediation of tenants, taking advantage of the fact that the land resource is extremely incapable as a production factor.
Thus, we can conclude that the economy is based on joint ownership of land .
Sentence
It is very limited at both the micro and macro levels. Many farms want to expand. However, the realization of this desire is associated with a number of difficulties in the short and long term.
Factors influencing land supply include location and fertility. Accordingly, when it comes to resource limitations, this refers to a site with soil of a specific quality, located in a certain area. It is logical that the number of good allotments near a large city or an individual farm is doubly limited (both in quality and in quantity).
Land supply may be fixed. This means that the curve is completely non-elastic. If the abscissa marks the number of acres of land, and along the ordinate axis the cost per hundred, the line will be parallel to the ordinate. This means that the proposal cannot be increased even if a significant increase in value.
Problems in practice
Fertility is influenced by many factors: labor skills of subjects working on the land, technical features, soil quality, climate, etc. Of course, some of them are variables, but due to the specifics of capital and labor used in the agricultural sector, change only occurs after a certain time.
In many developed countries, family farms are very common . Accordingly, the number of people employed in agricultural production includes mainly family members. Their occupation, land ownership, and housing actually “tie” them to a specific territory. As a result, their mobility is significantly limited.
Some of them are trying to find another income. For example, they get a part-time job, rent rooms, etc. But all these sources can be considered only additional. The main income is still associated with agricultural activities.
Moreover, the mobility of hired agricultural workers is also significantly limited. Their earnings, as a rule, are significantly lower than the salaries of the personnel of industrial enterprises. In addition, workers often receive income in non-monetary form (in the form of products, housing, etc.).
In the framework of small-scale farming, the possibilities for replacing capital are significantly limited. This is due to a lack of assets. However, there are some reserves for improving soil quality, depending on the form of management. But again, due to the specifics of agriculture, they cannot change quickly. Moreover, mismanagement can cause damage to the land.
Demand
He is very heterogeneous. It is formed from agricultural and non-agricultural demand.
If the abscissa marks the number of hundredths, and the ordinate axis - the cost per hundredths, the slope of the demand curve will be negative. This is due to the fact that in the process of involving land resources in circulation, it is necessary to move from the best to the middle, and in some cases the worst, plots.
The non-agricultural demand curve will also have a negative slope. This is more due to the location of the allotment. There are also some restrictions, as subjects have to use the territory not only in the central areas of cities, but also on their outskirts.