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Theory Of Production And Cost

Factors of Production – Land

The fast-paced development of world economy accompanies an exponential increase in the complexity of the process of production. But whatever might be the evolution in economics and production, the factors of production stand unscathed. When talking about production, the first factor of production that strikes our mind is land. Interestingly, the economic definition of land does not lie within the limits of just an area.

Factors of Production

With increasing complexity in the world economy, the complexity of the production process is sky-rocketing. Luckily, production still and will continue to rely upon a certain set of factors, that enclose the ever-increasing complexities in their bubble.

These factors of production- land, labour, capital, and entrepreneur, always accompany the process of production. Every possible aspect required for production is a part of these four factors. Here, we will be talking about land.

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Land as a Factor of Production

A man with little or no knowledge of economics would think of the significance of land as an area required for production. On the contrary, the definition of land in the economics, of course, is an area, but also includes all the free gifts of nature like water, air, natural resources etc. which affect production.

To point out, a factor of production can be a combination of work done by human efforts and natural occurrences. In that case, there are some characteristics that ease out this confusion by clarifying the factor of production-land.

Land as a Factor of Production:

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Free Gift of Nature

Every factor of production which comes under the umbrella of land should have no supply price. To put it differently, land can be used for production without paying any money to the ultimate owner i.e. the mother earth. Further, it requires no human effort.

Fixed Supply

Land is a strictly fixed factor of production. Obviously, the quantity of land in existence will always remain the same and no human power can alter that. This means that no amount of change in demand can change the supply of land. To point out, this characteristic is evidence that the supply of land is perfectly inelastic.

However, any free gift of nature is abundant, when seen through the lens of a single firm. Hence we can conclude that the supply of land is perfectly inelastic from the perspective of an economy whereas it is relatively elastic from the perspective of a single firm.

Permanent and has Indestructible Powers

Most of the features related to land are out of the realms of human power. We can only degrade or upgrade the characteristics of land up to an extent. The quantity of land and specifically the land itself is indestructible.


Of course, land is a static factor. One cannot shift the natural resources from their places of origin. Now some would argue that a factor categorized as land, say water, can be taken to another place. However, you should appreciate the fact that the whole reservoir of water cannot be shifted to another place at will. Further, the combination of natural factors or characteristics of a given place is generally unique.

Has Multiple Uses

We can use land in a variety of ways, for various purposes. Hence, land has multiple uses. However, its suitability for all uses is definitely not the same. For instance, we can use a piece of infertile land to set up a factory but not for cultivation and agriculture.


Obviously, no two types of land can be the same. There are a plethora of characteristics which define a type of land and two instances of land are bound to differ on at least one of these characteristics. For example, two patches of land can differ in fertility, dimensions, composition and a lot of other characteristics.

Solved Example on Factors of Production

Q: Land is an active factor of production. True or False?

Ans: The statement is False. Land is a passive factor of production. It requires the help of other factors, especially labour to be put to use.


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