-
Land is short for all the natural resources available to create supply. It includes raw property and anything that comes
from the ground. It can be a non-renewable resource. That includes commodities such as oil and gold.
Land as a Factor
Land has a broad definition as a factor of production and can take on various forms, from agricultural land to commercial real
estate to the resources available from a particular piece of land.
Natural resources, such as oil and gold, can be extracted and refined for human consumption from the land. Cultivation of
crops on land by farmers increases its value and utility.
For a group of early French economists called the physiocrats who pre-dated the classical political economists, the land was
responsible for generating economic value.
While the land is an essential component of most ventures, its importance can diminish or increase based on industry. For
example, a technology company can easily begin operations with zero investment in land. On the other hand, the land is the
most significant investment for a real estate venture.
Free Gift of Nature
The supply of resources, such as soil, minerals and water, is basically fixed. Man cannot create these
resources. The value of the land depends on its physical location and the resources it contains. Land is
bought and sold by individuals. The ownership of the land transfers from one person to another. Also,
the production capabilities of land can be changed by man. For example, when man grows wheat on the
land, he may be able to produce "x" quantity. When rice is cultivated on the same land, the person may
get "2x" quantities.
Immobility
Land is fixed and immobile. It cannot be transferred from one location to another. Only the value of these
resources can be transferred. The value and the fertility of land tend to vary from location to location.
Land at one location may be very fertile and may yield good quality crops. The land in another area may
be barren, and it may not be possible to grow any kinds of crops.
Primary Factor of Production
Land is a primary factor of production. Companies that produce goods need a physical address to
operate. The company may own the land or rent it. The management does not necessarily have to
occupy the land. Sometimes, companies may have several offices, plants and warehouses
internationally. In such cases, international rules need to be complied with separate from the corporate
headquarters.
Passive Factor of Production
Land by itself cannot produce anything for the company. Work needs to be carried out to convert the
land into a usable condition. Capital investment is needed on the land to build an office. The company
needs to have laborers to construct the premises. Entrepreneurship is required to start, maintain and
grow the business.
In its simplest form, land is the physical place where economic activity takes place. In our lemonade stand example, it could be
the patch of lawn in front of your house. However, land also includes all the natural resources found on it.
Land can also include natural resources such as timber
land
Resources can include timber, water, oil, livestock, and so forth. So if you used real lemons from a tree in your yard to make
that lemonade, you used part of the land. Land plays an important part in production because land itself and the resources on
it are usually limited. Political regulations prevent a person from just going and claiming something for themselves, or there
may not be enough for everyone to have. Also, many of the natural resources are nonrenewable, meaning that their amount is
fixed, and they can't be used indefinitely. Thus, producers must carefully manage land and its resources.