Essay on Global Warming: Causes, Effects, Impact and Prevention of Global Warming
The following points highlight the top six characteristics of land. The characteristics are: 1. Fixed supply 2. Alternative uses 3. No cost of production 4. Differences in fertility 5. Operation of the law of diminishing returns 6. Mobility.
Characteristic # 1. Fixed supply:
The total land area of earth (in the sense of the surface area available to men) is fixed. First, supply of land is fixed or inelastic from society’s point of view. To an individual, however, supply of land is price- elastic. But, the supply of labour and capital is alterable by human effort in the long run. The fixity in the supply of land is the basis of a law known as the Law of Diminishing Returns.
Therefore, the supply of land is strictly limited. It is, no doubt, possible to increase the supply of land in a particular region to some extent through reclamation of land from sea areas or deforestation. But, this is often offset by various kinds of soil erosion. The end result is that changes in the total area are really insignificant. Of course, the effective supply of agricultural (farm) land can be increased by drainage, irrigation and use of fertilisers.
In consequence, the prices of land and natural resources tend to be extremely sensitive to changes in consumer demand, rising sharply if they become more desirable. In this context, we may refer to the sharp increase in the price of building land in Mumbai in the last few years. However, new discoveries are often stimulated by high prices (as in the case of oil in the U.K.’s North Sea, which tend to moderate price increases.
Characteristic # 2. Alternative uses:
Although the total supply of land is fixed, land has alternative uses. Land may be of different kinds and may be used for different purposes. In fact, all lands used for cultivation are not equally fertilised nor have all urban lands the same situational advantage. Like land, capital and labour may be of diverse type and may be used for different purposes.
The same plot of land can be used to set up factories or to grow wheat or sugarcane or even to build a stadium. This means that the supply of land to a particular use is fairly (if not completely) elastic. For example, the amount of land used for growing tomato can be increased by growing less of some other crop (e.g., cauliflower). The supply of building land can be increased by reducing the area under agricultural operation.
Characteristic # 3. No cost of production:
Since land is a gift of nature, it has no cost of production. Since land is already in existence, no costs are to be incurred in creating it. Land has no cost of production as its creation involves no human effort or sacrifice. This is why it is called a free gift. But, at the micro level it has a supply price.
A man must have to pay a price for a plot of land. Other factors of production have costs on the basis of which their prices are determined. For example, the costs of training and education generally determine wages of labour. In this sense, land differs from both labour (which has to be reared, educated and trained) and capital (which has to be created by using labour and other scarce resources or by spending money).
So, it logically follows that the entire return from land — called rent — is a surplus income (at least from society’s point of view). As G. K. Stanlake has rightly put it, “any increase in the value of natural resources due to rising populations and rising incomes accrues to the owners of these resources as a windfall gain — it does not arise from any efforts on their part”.
However, the above argument is not valid today. In fact, much of the services of land require expenditure of resources to obtain or maintain them and hence they are often called capital (i.e., produced means of production). So, land, as a factor of production, is ‘really distinct’ from capital.
Characteristic # 4. Differences in fertility:
Another important feature of land is that it is not homogeneous. All grades (plots) of land are not equally productive or fertile. Some grades of land are more productive than others. And Ricardo argued that rent arises not only due to scarcity of land as a factor but also due to differences in the fertility of the soil.
Characteristic # 5. Operation of the law of diminishing returns:
Furthermore, we may refer to a special feature of land, not shared by other factors. In fact, production on land is subject to the operation of the law of diminishing returns. Supply of land being fixed, application of more labour and capital will lead to diminishing yield. It is also applicable in case of other factors as well but in the short run. In the long run the supply of other factors can be increased.
As Alfred Marshall has put it, “while the part which nature plays in production shows a tendency to diminishing return, the part which man plays shows a tendency to increasing return”. This simply means that as more and more workers are employed on the same plot of land, output per worker will gradually fall (because each additional worker will make less and less contribution to total product). The law of diminishing returns refers to diminishing marginal product of the variable factor (labour).
Characteristic # 6. Mobility:
Land is not geographically mobile. But, it is occupationally mobile. In most parts of India, for example, land has many alternative uses. It might be used for farmland, roads, railways, airlines, public parks, playgrounds, residential housing, office buildings, shopping complex and so on. Some of the land, for example, in hill area of, say, Shillong or Darjeeling, has an extremely limited degree of occupational mobility, being useful perhaps for sheep grazing, golf course or as a centre of tourism.