Difference Between Land And Capital As Factors Of Production

Difference Between Land And Capital As Factors Of Production

Land is the first and foremost factor or production. It is the chief source of production. Economic prosperity of a country depends to a great extent on the quality of land. Land and capital are two important factors of production in economics.  Land has a special meaning in Economics. It includes all those free gifts of nature which are owned and managed by individuals and institutions. In Economics, land denotes the surface of the earth as well as other elements like rivers, mountains, forests, oceans, minerals etc. There are some differences between land and capital as factors of production in economics.

Capital denotes produced means of production. It denotes all those means of production like machinery, raw materials, factory buildings etc., which help in the production of goods and services. Both land and capital are essential for starting and continuing the manufacture of goods and services. In spite of the close affinity between land and capital, they differ from one another in the following aspects –

Difference Between Land And Capital As Factors Of Production

1) Both differ in their nature. Land is considered a free gift of nature. No one produced it. No cost is involved for its creation. On the other hand, capital is not a free gift of nature. It is man made.

2) Land has no cost of production. But capital involves some expenditure.

3) Land and capital differ in their availability. While land is inelastic and unchangeable in supply, capital is elastic and changeable. The supply curve of land is inelastic. It is vertical to OX axis. On the other hand, the supply of capital is elastic. Its supply can either be increased or decreased as per the needs of the country.

4) Both differ in their continuity. While land is permanent and indestructible, capital has no such permanent existence. After some period it loses its form and existence.

5) Both also differ in their remuneration. The remuneration paid to land for its utilization is described as rent. On the other hand, the remuneration paid for the utilization of capital is known as interest.

6) Another difference is that land is immobile. It has no mobility from one place to the other. On the other hand, capital is a movable one. It can taken to anywhere depending on the purpose. Hence capital has mobility.

7) Land is heterogeneous in nature. It differs in its fertility and soil at different places. In fact no two pieces of land possess the same fertility. As against this, capital is homogeneous. It is uniform in its quality.

Why The Law Of Diminishing Returns Is Specially Applicable To Land?

The Neo-classical economists considered that the Law of Diminishing Returns is applicable to the land only. As the supply of land is fixed and inelastic, it is not possible to raise output after a particular stage. The classical economists and neo-classical economists viewed that this law is applicable only to land. Even though this view is correct to some extent, this law is also applicable to other sectors like industry, transport and mining.

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