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Definition of Land:
includes resources on and under the earth’s surface, in the seas, and in the air. Land is one of the factors of production, or inputs used to provide a good or service.
When we think of land, most of us think of the upper layer of the earth where buildings are built and crops are planted. Economists take a more expansive view of land. They include water, mineral deposits, fish, oil, timber, crops, and other natural resources extracted from the land. In fact, “land” includes under the earth’s surface, on the earth’s surface, the seas, and the atmosphere. Economists consider land as one of the four basic factors of production. The others are labor, capital, and entrepreneurial talent. Factors of production are used to produce goods and services. Since companies use the natural resources derived from the land to manufacture their product, land is considered a factor of production. For example, land is needed to build a furniture plant. To build furniture, the manufacturer needs wood (from timber) and leather (from cattle).
What determines the demand for these natural resources? The demand for the final product – the demand for a factor of production is derived from the demand for the final good or service produced. This explains the high volatility in crude oil prices, and the difference in land values from one location to another. When the demand for gasoline increases, the demand for crude oil increases. The demand for crude oil is derived from the demand for gasoline, so the price of crude oil is directly linked to the price of gasoline. Likewise, the demand for rental housing is much greater in London, England than in Butner, North Carolina, so the price of land is much higher in London. Rent is the price charged for the use of land.
Classical economists view the supply of land as fixed. While some of the resources are “renewable,” few would argue they are inexhaustible. For example, some species of fish are endangered because of over fishing. Fish are renewable, but limited. Limited resources underscore the importance of managing our resources and sound economic policies.
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