Land market and land rent, Land market - Economic theory

Land market and land rent

The land market

In various types of economic activity, land resources, are used to land and its subsoil, water and forest resources. The earth is quantitatively limited and, unlike capital, is static, i.e. is not movable, which has a significant impact on the formation of the land market.

The offer of land in most of the economically developed countries is stable. Extend it is very difficult because of the constant reduction of agricultural areas, the development of urban economy, the general deterioration of the environment. At the micro level, the supply of land is considered from the point of view of the natural fertility of the soil, the location of land, technological use of land. Agriculture is characterized by some features of production compared to with industry. Thus, in the agrarian sector of economically developed countries, the predominantly farmed households in which family members work. The mobility of the rural population is very small: people retain in place land ownership, occupation, and even mobility of hired agricultural workers is low, which is determined by their qualifications, part of the income in the form of housing, agricultural products, etc. The structure of the capital used in agribusiness also can change quite rapidly, due to the limited financial resources of farms. In addition, a lack of capital can reduce the yield of land. Thus, the supply of land is almost inelastic in price. It can be represented as a graph (Figure 6.1).

Earth Supply Curve

Fig. 6.1. Earth supply curve

Demand for land is composed of demand for agricultural and non-agricultural land. Graphically, demand for agricultural land is presented in the form of a demand curve for land, which has a negative slope (Figure 6.2). This is due to the fact that at a certain level of development of technology and technology, relatively poorer plots of land are included in the agricultural turnover. (The decline in soil fertility was noted at the beginning of the 17th century in the writings of the physiocrats.) Demand for agricultural land depends on the demand for food.

Demand curve for land

Fig. 6.2. Demand curve for land

The demand curve for non-agricultural land also has a negative slope, as the plots for the construction of housing, industrial enterprises and institutions are located in the central and marginal areas of the city.

Agricultural land is distinguished by the level of natural and artificial fertility and location relative to the market for the sale of products. The agrarian sector of the economy is characterized by a market situation very similar to perfect competition, since in most countries the bulk of agricultural raw materials and food are offered to the market by family farms. The price for plots of land is free. Free pricing in many countries is not affected either by the state or by large landowners. Another feature of the agricultural sector is that the demand for food is weakly elastic in price. The volume of demand for basic foodstuffs with the growth of prices varies little. At high inflation rates, the demand of the population for non-food products shifts to food. The production in agriculture depends on the natural and climatic conditions. Unfavorable weather conditions cause a sharp fluctuation in the supply of agricultural products. Weak elasticity of demand for food products with a relatively small reduction in supply can cause a rise in food prices, but the opposite situation is also possible with large volumes of harvest.

The decrease in the profitability of agricultural production is affected, oddly enough, by an increase in the living standards of the population in economically developed countries. In the growing budgets of families, the share of food is relatively reduced. The specific weight of agriculture in the created national income also falls. This trend forces the state to influence the development of the agrarian sector of the economy.

Demand for non-agricultural land is also heterogeneous. It consists of demand for land for housing construction; the construction of industrial enterprises, various institutions. This aggregate of demand has a steady upward trend. Growth in demand can also be prompted by high inflation rates, in which the desire of people to protect themselves from the depreciation of savings is increasing.

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