Market Equilibrium

The supply curve for land is completely inelastic-that is, vertical-s-because the supply of land is fixed. In Figure 14-1, the demand and supply curves intersect at the equilibrium point E. It is toward this factor price that the rent of land must tend. Why? If rent were above the equilibrium, the amount of land demanded by all firms would be less than the fixed supply. Some landowners would be unable to rent their land and would have to offer their land for less and thus bid down its rent. By similar reasoning, the rent could not long remain below the equilibrium. If it did, the bidding of unsatisfied firms would force rents back up toward the equilibrium level. Only at a competitive price where the total amount of land demanded exactly equals the fixed supply will the market be in equilibrium.

Suppose the land can be used only to If the demand for corn rises. the demand curve for corn land will shift up and to the right, and the rent will rise. This leads to an important point about land: The price of land is high because the price of corn is high. This is a fine example of deriued which signifies that the demand for the factor is derived from the demand for the product produced by the factor.

Became the supply 01″ land is inelastic. land will always work for whatever it can earn. Thus the value of the land derives 110111 the value of the product, and not vice versa.

[av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,http://economicskey.com/buy-now' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello']

Share This