Factors of production: Natural Recourses and Land

Economists consider natural resources to be the third factor of production. They are a contribution to productive activity made by land (for example, a factory site or farm location), raw materials such as iron ore, timber, oil, water for crops and power production, forests and animals.

Some natural resources, wheat, for example, are renewable; others such as iron ore are non-renewable and will sooner or later be used up. Economists know reduced supplies of non-renewable resources to result in their higher prices, which provide an incentive to look for natural or synthetic substitutes for them.

The supply of land, an essential natural resource, is limited and it cannot be easily increased to meet an increase in demand except in certain cases. For example, the Dutch have been able to reclaim from the sea some areas of low-lying land.

Another essential characteristic of land is that it is durable, that is, land is not used up in the production process, although it may be depleted by use.

Land is, in some respects, close to physical capital, though the former is supplied by nature and the latter is produced by man. But applying labour to kill weeds or fertilizer to improve the soil, farmers can “produce” better land and raise its price.

Price of or income from land, as well as from other natural resources, is called rent. Land itself has no cost of production, so rent depends on the degree of scarcity and on the demand for it.

The purposes for which land is used are due to its characteristics. Land can be used for housing or offices, for mining, or for building roads. Besides, it contributes to the production of crops, providing an environment that supplies water, air, and nutrients for plant growth.

Land as a unique agricultural resource poses management problems for the farmer. In the first place, the farmer has to make a choice between buying and leasing it. The advantages and disadvantages depend on the farmer’s financial position, on the availability of land for lease and purchase and some other factors.

Because purchasing land usually requires a larger capital, farmers with limited capital lease land and use their capital for machinery and other resources.

Economists consider a satisfactory lease to be the one that is profitable both for the landowner and the tenant. A fair lease compensates both parties to proportion to their contributions to the farm business.

Other management problems may arise due to differences in land profitability in various fanning branches and other industries. Economists know different crops and classes of animals to vary in profitability. The farmer has to study thoroughly the conditions on his farm to make a correct choice between alternative uses.

Although the total supply of land is limited, its allocation between industries is not. If a government wants to stimulate, for example, either housing or forestation, it offers a subsidy raising the rent received by owners of housing land or forests. This may create incentives for farmers to transfer land from farming to other industries.

2. Insert the following words and word combinations in the proper form:

(profitable, though (2), conditions (2), to meet the demands, although, lease, rent, advantage, disadvantage, purchase, to provide, besides)

1. After the 1973 shock rise in oil prices firms tried to stay in business for some time, ….they were given a new blow by the second sharp rise in oil prices in 1980-81.

2. Economic statistics have to............... of various potential users.

3. Industry-specific human capital has both... and …… ……...….experienced workers get higher wages, they may have difficulty in finding a job if their human capital has become of no or little value.

4. Economic … are constantly changing.

5. With risen prices for oil, producers find it... to do research on substitute sources of energy.

6. To analyze the labour market, an economist should first explain how and under which...... people allocate their time to business, which means he should study the supply of labour. …...., he should decide how firms employ labour, which means he should study demand for labour.

7. Part of national income is spent on the...... of imported goods and services …... it should not exceed a certain share of it.

8. Transfer of surplus labour from agriculture to industry can...... a source of economic growth.

9. ……. is a contract under which the owner of a building, machinery, land, etc. lets someone use his asset for a specified period of time in return for periodic payments of.......

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