Factors of production

Meaning of land: This is the free gift of nature which is combined other man-made resources to produce goods and services. Land consists of sea, oceans, forest, mineral resources and all other resources freely given to man by nature. The reward for putting land to productive use is rent.

Features or characteristics of land

  1. Free gift of nature: Its existence is not as a result of man’s effort.
  2. The supply of land is fixed: It is not possible for man to increase its quantity.
  3. Land is geographically immobile: It cannot move from one place to another.
  4. It is subject to diminishing return: The more land is engaged in production, the less productive it becomes.
  5. Land has no cost of production: No cost was involved in its existence because it is a free gift of nature.
  6. It is heterogeneous: The quality and value of land vary from one location to another.

Importance of land

  1. It serves as site for economic activities: Land provides location for economic activities like manufacturing of goods.
  2. It serves as source of minerals: Mineral resources such as limestone, diamond, crude oil are got from land.
  3. It is useful for agricultural activities: Land provides site for agricultural activities needed to provide food for man.
  4. It is useful for transportation purpose: Land provides room for road, air and water transportation.
  5. It may serve as collateral security: Land is useful as collateral to secure loan from banks.
  6. It provides site for buildings: All residential and industrial building are sited or located on land.
  7. It provides site for grazing animals: Land provides grassland suitable for animal grazing.

Law of diminishing returns (Also known as the law of variable proportions)

The law of diminishing returns is bound to be in operation when we combine fixed factor of production (e.g. land or fixed capital) with variable factor of production (e.g. labour). The law therefore states that “as more variable factor of production (e.g. labour) is combined with a given quantity of fixed factor (e.g. land), total output will increase at first, but continuous addition of variable factor will reduce addition to total output”