LECTURE IN ECONOMICS AS OF APRIL 19, 2019

http://www.economicsdiscussion.net/land/land-in-economics-notes-characteristics-
functions-importance-and-productivity/31125

https://courses.lumenlearning.com/boundless-economics/chapter/introduction-to-
natural-resource-economics

The term ‘land’ generally refers to the surface of the earth. But in economics, it
includes all that, which is available free of cost from ‘nature’ as a gift to human
beings. Land stands for all nature, living and non-living which are used by man in
production.

Even though land is passive factor and it does not possess any ability to produce on
its own, it is an important agent of production. Modern economists consider land as
a specific factor of production, which can be put, not only to a specific purpose but
to several other uses.

Land has been defined by various scholars, as:

“By land is meant not merely land in the strict sense of the word, but whole of the
materials and forces which nature gives freely for man’s aid in land, water, in air
and light and heat.” —PROF. MARSHALL

“Land is a specific factor or that it is the specific element in a factor or again that it
is the specific aspect of a thing.” —PROF. F. K. MEHTA

Thus, we can say, land includes:

i. Surface of the earth like plains, plateaus, mountains, etc.

ii. Sea, rivers, ponds, etc.

iii. Air, light, etc.

iv. Oil, coal, natural gas, etc.

v. Silver, gold and other metals and minerals.

The main characteristics of land are:

1. Free Gift of Nature:

Basically, land is available free of cost from the nature. In the initial stages, man
paid no price for the land acquired by him. However, to improve the usefulness or
fertility of land or to make some improvements over land, some expenditure is to
be incurred, but as such, it is available at no cost from nature. Man has to make
efforts in order to acquire other factors of production.

But to acquire land no human efforts are needed. Land is not the outcome of
human labor. Rather, it existed even long before the evolution of man.

2. Supply of Land is fixed:

Supply of land is fixed in quantity. It means supply of land cannot be increased or

decreased like other factors of production. Although for an individual, supply of
land may be flexible, but at macro level, the overall supply of land is fixed.
However, only effective supply of land can be increased by making an intensive
use of land.

3. Difference in Fertility:

All lands are not equally fertile. Different patches of land have different degrees of
fertility. Some locations are very fertile and have very good agricultural
productivity, whereas some patches are totally barren and nothing can be grown
there. Similarly, the degree of richness of mineral wealth varies from place to
place, making the land more useful or less useful from economic point of view.

4. Indestructibility of Land:

Land is an indestructible factor of production. Man can change only the shape of a
particular location and composition of its elements, but as such land cannot be
destroyed. It can either be converted into a garden or to a forest or to an artificial
lake. However, some parts of land get eroded due to natural factors, but that is
immaterial because overall availability of land does not change.

5. Immobility:
Unlike other factors, land is not physically mobile. It is an immobile factor of
production, as it cannot be shifted from one place to another. It lacks geographical
mobility. Some economists, however, describe land as a mobile factor on the
argument that it can be put to several uses.

6. Land is a Primary Factor of Production:

In any kind of production process, we have to start with land. For example, in
industries it helps to provide raw materials, and in agriculture, crops are produced
on land.

7. Passive Factor of Production:

Land is a passive factor of production, because it cannot produce anything on its

own. Human element and capital inputs are required to be combined in an
appropriate manner with land in order to obtain yields from it.

8. Effect of Laws of Returns:

Since land is a fixed factor of production, the laws of returns are more effectively
applicable on it. Increased use of capital and labor on a particular plot of land leads
to an increase in crop production at a diminishing rate.

9. Alternative Uses of Land:

Land is used for alternative purposes like cultivation, dairy or poultry farms, sheep
rearing, building, etc. The use of land for any particular purpose depends not only
on the return from that particular use, but also the returns from alternative uses.

10. Land is Heterogeneous:

Land like other factors of production differs from another in respect of location,
fertility, nature and productivity. Two pieces of land are not exactly the same.

Functions of Land:
The primary occupations are agriculture, dairying, animal husbandry and poultry
farming. These essential activities are not possible without land. Manufacturing
industries depend totally on land for raw materials. Land provides minerals, metals
and many raw materials like cotton, jute and sugarcane which are used to create
other essential products.

1. Primary Occupation:

All primary occupations like agriculture, animal husbandry, poultry farming,

fisheries, dairying, forestry, etc. are land oriented and are also known as primary
activities.

2. Basis of Industries:

Manufacturing industries get diverse type of raw materials from land, namely, raw
cotton, sugarcane, raw jute, coal, minerals and metals, etc.

3. Basis of Power:

All sources of power, i.e. hydro-electricity, thermal power, diesel, coal, oil, etc.,
emanate from land.

4. Basis of Employment:

In underdeveloped countries nearly two-third of population is engaged in

agriculture and other primary activities. Agriculture, forests, mines, etc., provide
lot of employment opportunities to rising population.

5. Basis of Transport:

All the important modes of transport, i.e., road, railways, water-ways and air-ways
are mainly based on surface of the land, rivers, oceans and air, which are all
constituents of land.

6. Basis of Trade:
Products of land are traded within the country and also form part of foreign trade.
Products like food grains, minerals, metals, timber, leather, hides and skins, wool,
tea, jute, petroleum, milk, butter, etc., are tradable products of land.

7. Basis of Economic Growth:

A natural resource, that is land, play an important role in the economic

development of a country. Prosperity of gulf countries lies in the oil-wells found
there. Economic development of South Africa is mainly due to its fertile land,
irrigation and power facilities. All these are different facets of land.

8. Basis of Life:

We depend on land for our subsistence, residence and other necessities of life.
Land provides food, raw materials and shelter.

Importance of Land:
Land is considered the primary factor of production. Land is rich in coal, water and
petroleum, which are used for generating power. Land is required to construct
factories and industries to carry out the production process. Land is of great
importance to mankind. A nation’s economic wealth is directly related to the
richness of its natural resources.

In spite of rich natural resources, a country may remain economically backward

due to some unfavorable factors on account of which the natural sources are either
under-utilized or not utilized. On the other hand, if a country does not have rich
natural resources, it is comparatively much more difficult to make it prosperous.

The quality and the quantity of agricultural wealth of a country depend on the type
of soil, climate, rainfall and water resources. The industrial progress and prosperity
of a nation depends on mineral resources. The presence of rich coal mines,
waterfalls or petroleum wells directly help in the generation of electric power,
which is a key factor for industrial development.

The localization of industries invariably depends on proximity of power and raw

materials. All these basic elements are provided by nature.

An example can emphasize the importance of land. In recent past, in spite of

having enough capital, labor and efficient organization, TATA Motors were unable
to start their Nano car project at Singur, West Bengal, due to the dispute over land
possession.

In short, the importance of land is evident from the following points:

1. Land determines agricultural production.

2. The industrial progress and prosperity of a country depends on availability of

mineral resources, i.e., land.

3. Land determines total production of a country.

4. Land influences the economic growth of a country.

5. Land maintains ecological balance.

6. Land directly or indirectly fulfills the basic needs of the people.

7. Trade is influenced by land.

Therefore, all economic aspects, i.e., agriculture, industry and trade are influenced
by natural resources, referred by economists as ‘Land’.

Productivity of Land:
Productivity of land refers to extent of efficiency. The productivity of land can be
expressed by following measures:

1. Average Productivity of Land:

Average productivity of land is defined as the output obtained from land divided
by area of that piece of land.

2. Marginal Productivity of Land:

Marginal productivity means the increase in output obtained from land due to
increase in one unit of land, but the other inputs are kept constant.

Factors Affecting Productivity of Land:

The factors affecting the productivity of land are discussed below:
1. Fertility of Land:

The productivity of land is determined by its natural qualities and its fertility. A
flat and leveled land is comparatively more productive than an undulating one. The
rich soil is more fertile and productive. However, the agricultural productivity can
be improved by proper and extensive use of manure and fertilizers along with
adoption of mechanized methods.

2. Proper Use of Land:

The productivity of ‘land’ is directly related to its proper utilization. For example,
a piece of land situated in the heart of city is more suitable for construction of a
house or a market place. If this piece of land is put for farming or agricultural use,
its productivity will almost be negligible.

3. Location of Land:

The location of ‘land’ affects its productivity to a great extent. For example, the
location of land near the market or bus station will result in economy of
transportation charges and overall productivity from this point of view will
naturally be higher. Similarly, for better agricultural productivity, its location near
water resources is desirable.

4. Improvements done on Land by Increasing Irrigation Potential:

Permanent improvements done on land by generating artificial means of irrigation,

i.e., wells, tube wells, canals, tank, etc., help to keep the water supply regular and
have a positive effect on the productivity of land.

5. Ability of Organizer:

Land is a passive factor of production and so it is essential to combine it with other

active factors, in correct proportion, to achieve the optimum productivity. In order
to accomplish it, an able organizer is a must, who can successfully handle and
combine the passive and the active factors in right proportion so as to achieve
greater productivity. The competence and ability of an organizer directly affect the
productivity of land.

6. Land Ownership Laws:

The ‘land ownership laws’ prevailing in a country have a significant influence on
the productivity of land’. When a full ownership is conferred, the owner takes
more interest in its development. For example, a cultivator possessing full
ownership rights on land does more hard work and the productivity automatically
improves.

But, poor farmers work as tenants on the lands of large farmers. Insecurity of
tenancy rights may cause eviction of poor tenancy farmers which make them
uninterested to improve land productivity.

7. Availability of Efficient Labor:

The productivity of land depends on the availability of efficient labor as land alone
cannot produce anything without the efficient labor. If the labor is efficient, trained
and capable to adopt modern techniques; only then he can make the proper use of
land.

8. Improved Techniques of Production:

New inventions, modern and scientific methods of production like using high
yielding varieties of seeds, manure, etc., have increased the productivity of land.
Uses of modern machines in mining have also increased the production of various
minerals in India.

9. Availability of Capital:

Capital is the fundamental factor that affects the productivity of land. The
productivity of land can be maximized with the help of improved seeds, chemical
fertilizers and machines. To fulfill all these requirements, sufficient capital should
be available.

10. Government Policy:

The productivity of land is affected by the government policy regarding
agriculture. Agricultural productivity starts increasing when the government adopts
a proper agricultural policy and provides required assistance to farmers. On the
other hand, the state’s negligence towards agriculture is regarded as one of the
main causes of agricultural backwardness. This results in low agricultural
productivity.

Types of Natural Resources

Natural resources are derived from the environment. Some of the resources are
essential to survival, while others merely satisfy societal wants. Every man-made
product in an economy is composed of natural resources to some degree.

There are numerous ways to classify the types of natural resources, they include
the source of origin, the state of development, and the renewability of the
resources.

In terms of the source of origin, natural resources can be divided into the following
types:

Biotic: these resources come from living and organic material, such as forests and
animals, and include the materials that can be obtained them. Biotic natural
resources also include fossil fuels such as coal and petroleum which are formed
from organic matter that has decayed.

Abiotic: these resources come from non-living and non-organic material. Examples
of these resources include land, fresh water, air, and heavy metals (gold, iron,
copper, silver, etc.).

Natural resources can also be categorized based on their stage of development

including:

Potential resources: these are resources that exist in a region and may be used in
the future. For example, if a country has petroleum in sedimentary rocks, it is a
potential resource until it is actually drilled out of the rock and put to use.

Actual resources: these are resources that have been surveyed, their quantity and
quality has been determined, and they are currently being used. The development
of actual resources is dependent on technology.
Reserve resources: this is the part of an actual resource that can be developed
profitably in the future.

Stock resources: these are resources that have been surveyed, but cannot be used
due a lack of technology. An example of a stock resource is hydrogen.

Natural resources are also classified based on their renewability:

Renewable natural resources: these are resources that can be replenished.

Examples of renewable resources include sunlight, air, and wind. They are
available continuously and their quantity is not noticeably affected by human
consumption. However, renewable resources do not have a rapid recovery rate and
are susceptible to depletion if they are overused.

Non-renewable natural resources: these resources form extremely slow and do not
naturally form in the environment. A resource is considered to be non-renewable
when their rate of consumption exceeds the rate of recovery. Examples of non-
renewable natural resources are minerals and fossil fuels.

There is constant worldwide debate regarding the allocation of natural resources.

The discussions are centered around the issues of increased scarcity (resource
depletion) and the exportation of natural resources as a basis for many economies
(especially developed nations). The vast majority of natural resources are
exhaustible which means they are available in a limited quantity and can be used
up if they are not managed correctly. Natural resource economics aims to study
resources in order to prevent depletion.

Natural resource utilization is regulated through the use of taxes and permits. The
government and individual states determine how resources must be used and they
monitor the availability and status of the resources. An example of natural resource
protection is the Clean Air Act. The act was designed in 1963 to control air
pollution on a national level. Regulations were established to protect the public
from airborne contaminants that are hazardous to human health. The act has been
revised over the years to continue to protect the quality of the air and health of the
public in the United States.
Natural Resource Economics

Natural resource economics focuses on the supply, demand, and allocation of the
Earth’s natural resources. The main objective of natural resource economics is to
gain a better understanding of the role of natural resources in the economy. By
studying natural resources, economists learn how to develop more sustainable
methods of managing resources to ensure that they are maintained for future
generations. Economists study how economic and natural systems interact in order
to develop an efficient economy.

Areas of Study

Economists study the commercial and recreational use and exploitation of

resources. Traditionally, natural resource economics focused on fishery, forestry,
and mineral models. However, in recent years many more topics have become
increasingly important, including air, water, and the global climate. Natural
resource economics is studied on an academic level, and the findings are used to
shape and direct policy-making for environmental issues.

Examples of areas of study in natural resource economics include:

welfare theory
pollution control
resource exhaustibility
environmental management
resource extraction
non-market valuation
environmental policy
Impact of Natural Resource Economics

The findings of natural resource economists are used by governments and

organizations to better understand how to efficiently use and sustain natural
resources. The findings are used to gain insight into the following environmental
areas:

Extraction: the process of withdrawing resources from nature. Extractive industries

are a basis for the primary sector of the economy. The extraction of natural
resources substantially increases a country’s wealth. Economists study extraction
rates to make sure that resources are not depleted. Also, if resources are extracted
too quickly, the sudden inflow of money can cause inflation. Economists seek to
maintain a sense of balance within extraction industries.

Depletion: the using up of natural resources, which is considered to be a global

sustainable development issue. Many governments and organizations have become
increasingly involved in preserving natural resources. Economists provide data to
determine how to balance the needs of societies now and preserve resources for the
future.

Protection: the preservation of natural resources for the future. The findings of
economists help governments and organization develop measures of protection to
sustain natural resources. Protection policies state the necessary actions
internationally, nationally, and individually that must take place to control natural
resource depletion that is a result of human activity.

Management: the use of natural resources taking into account economic,

environmental, and social concerns. This process deals with managing natural
resources such as land, water, soil, plants, and animals. Particular focus is placed
on how the preservation of natural resources impacts the quality of life now and for
future generations.