The land market. Land rent
Land belongs to the type of resource, with absolutely no elastic supply, since the change in prices of its total land offered for sale, will not change. The main condition for the emergence of rent is the fact that the limited supply of land. This limitation is not observed during the formation of the supply of labor or capital supply (unless the limitations do not induce), as the last two factors of production are readily reproducible. This is not the land suitable for crop production, and the same applies to land in the mining and construction industries.
The fixed nature of the land means that the proposal on the land market is not elastic. The demand for land is: agricultural and non-agricultural.
The market price of the land will be determined under the influence of the general demand for a fixed amount of land. Then the land owners will receive income in the form of rent.
Economists use the term "rent" - as the price paid for the use of land and other natural resources, the number of which (their stocks) are strictly limited.
Economic rent - is the price of land to be paid to the owner for the opportunity to productive use of the land and make a profit. Rent is part of the profits and paid by its distribution in favor of the land owner. Sometimes the rent includes rent, if the land is leased to the economic use of already constructed buildings on it.
Land rent as income of the owner of land and other natural resources can be differential and absolute. At the heart of obtaining differential land rents are the differences in the natural fertility of the land and the location of the land. Absolute ground rent - rent, available in any and all parts of the earth. She appears as the difference between the cost of agricultural production and the cost of production.
Differential land only occurs on the land, which have natural fertility and good location for the market. This rent is called the differential rent Ι kind. Kind of differential rent II is formed by increasing economic fertility (fertilizer, and reclamation of the land treatment).
R D S
R-Land rent
QL – the amount of land
Re E
QL
Fig. 19. Equilibrium in the land market
Graphically, the value of land rent is determined by the intersection of the curves D and S (Fig. 19). Point E - is the level of rent that balances the demand and supply of land. If the quantity of ground rent was higher equilibrium level, not all landowners would find willing to take their lands for lease, and thus, the value of the rent reduced when landowners began to compete in the search for tenants. If the quantity of ground rent was below the equilibrium level, tenants could hardly get hold of the required area, and aggravated, by limiting the supply of land, competition would increase the amount of ground rent. Thus, only at the point E will be equal in the demand and supply of land.
In a market economy the land is bought and sold, and has a price. The owner of the land seek to sell it for that amount (the price) that if you put it in the bank, would bring annual percentage equal to the annual rent. Therefore, the price of land depends on two variables:
1) The size of rent that can be obtained by becoming the owner of the land;
2) The rates of interest on loans.
This relationship can be expressed by the formula:
The price of land = the size of rent x 100%
the rates of interest on loans
For example, if the annuity is $ 2,000, the rate of interest on loans - 4%, the price of land = 2000/4 x 100 = $ 50,000
Land price increases if the amount of rent increases, and decreases when the interest rate rises