Interaction of Demand and Supply
We have analysed the demand and the supply side of land. The interaction of these forces is shown in the diagram (see Only then there can he one demand curve and line supply curve. We also ass lime perfect competition. SS supply curve. a vertical straight line. represents fixed supply. We start with DD as the total demand curve for land. These two curves intersect at E. In this OR (= SE) is the rent. If the rent is less than OR. say OR” t= SE”). the demand for land will increase; but the supply is fixed, hence rent will again rise to OR. If. on the other hand. rent rises above OR to OR’ (= SE’). the demand for land will decrease and bring the rent back to OR. Suppose now that on account of increase in population or otherwise, demand for land has increased from DD to D’ JJ’. Supply curve is still the same SS. The new point of intersection will be E’. and. therefore. the rent will be OR’ (= SE’).lf demand falls to D” n” then the demand and the supply curves intersect at E”. and the rent will be OR” (= SE”). In case. the country is entirely new and land of good quality is surplus. then there will be no rent. This condition i~ shown by If the land is of different qualities, then each quality will have a separate demand curve and each quality of land will command diffetcut relit. l the theory explains differential rent It lO.