Chapter 18 – The Land Market and Natural Resources

Fixed supply of land (to all uses)

The supply of land to all uses is fixed

Owners receive economic rent

Land supply to a given use The supply of land to a given use is

upward sloping Land is shifted to its most valuable

use (subject to restrictions in zoning laws, etc.)

Renewable and nonrenewable resources nonrenewable resources (also

known as exhaustible resources) have a finite supply that is depleted as the resource is consumed

renewable resources – can be replenished by producers

Equilibrium price of a nonrenewable resource

Price of a nonrenewable resource over time

Price changes over time for nonrenewable resource Owner may sell a unit today or sell it later at a

higher price Owner supplies more today if the expected rate of

price increase is less than the interest rate leads to lower price today and higher price later

Owner supplies less today if the expected rate of price increase exceeds the interest rate leads to higher price today and lower price later

In equilibrium – rate of price change = interest rate

Renewable resources