Development Economics Final Exam

Topics: Land, Economics, Factors of production Pages: 2 (804 words) Published: October 5, 2014
1. Why is the assumption of land as a homogenous factor of production no longer considered tenable?

In classical economics, land along with labor and capital are considered as one of the factors of production. Land is often regarded as the original factor of production because it is found in nature and therefore not produces and cannot be derived from anything else.

As a natural good, land was considered the source of wealth thus agriculture was the only sector that could increase it. Thus follows a theory of production from the middle age, wherein production is understood as an increase of matter, which is only achievable through agriculture and the delivery of raw materials.

Land as a homogenous factor is rooted on the following concepts: Land as having a perfectly elastic supply thus land is always readily available and does not decrease Land is not productive on its own therefore land must be used as a means of production; and the only way to increase land is through agriculture or raw material resources such as mining.

The reason that the assumption of land as a homogenous factor of production is no longer tenable is that, in recent years, land has been given a wider definition, thus it is not only limited to areas which are useful for agriculture or mining, but also above and beyond the actual land that can be seen such as forests, bodies of water, mineral resources, recreational areas. Land is given multiple demands which are not limited to agriculture and mining alone. Today, in contrast to classical economics, land is used for building, as capital for production of goods and services, for recreational purposes, etc. Attached to the idea of multiplicity is the concept of value. Such an understanding allows one to realize that besides land being natural, it is also location-specific and depletable. Value is classified into: Non-use value refers to the benefit humanity receives from the continued existence of environmental assets and does not...
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