Question

The supply of land is (LOl) a) perfectly elastic c) relatively elastic b) perfectly inelastic d) variable in elasticity

Short answer

The supply of land is best characterized as \(b)\) perfectly inelastic. This is because the overall quantity of land remains constant and limited, making the supply unresponsive to price changes.

Step-by-step solution

Understand the Concepts of Elasticity

Elasticity measures the responsiveness of supply or demand to changes in price. If the supply is responsive to price changes, it is considered elastic. On the other hand, if the supply is not responsive to price changes, it is considered inelastic.

Analyze Option a: Perfectly Elastic

If the supply of land was perfectly elastic, it would mean that any change in price would lead to infinite changes in the quantity supplied. In other words, landowners would be willing to supply any quantity of land at a specific price. This is not the case with land since its quantity is limited.

Analyze Option b: Perfectly Inelastic

If the supply of land were perfectly inelastic, it would mean that no matter how prices change, the supplied quantity of land remains constant. This is a more appropriate characterization for the supply of land since land is scarce and cannot be created or destroyed.

Analyze Option c: Relatively Elastic

If the supply of land were relatively elastic, it would signify that the supply is somewhat responsive to price changes, but not as much as in the case of a perfectly elastic supply. While there may be some possibilities for landowners to change the use of their land when the price changes, the overall quantity of land remains mostly constant.

Analyze Option d: Variable in Elasticity

Variable in elasticity means that the supply of land's responsiveness to price changes constantly. For land supply, this is not the case since the quantity is mostly constant.

Conclusion: Choose the Best Fit

Based on the above analysis, the supply of land is best characterized as \(b)\) perfectly inelastic. Although landowners may be able to make minor changes to the use of their property in response to price fluctuations, the overall quantity of land remains constant and limited, making the supply of land inelastic.

Key concepts

Perfectly Inelastic Supply

In the realm of economics, a perfectly inelastic supply means that the quantity supplied remains unchanged, regardless of any changes in price. Imagine a classroom with a fixed number of seats. No matter how much demand increases for these seats, the supply stays constant because the number of seats can't magically increase in the classroom.

When it comes to land, this concept applies strongly because the total amount of land is fixed. Unlike products such as toys or food, which can be manufactured in greater numbers, land cannot be created or destroyed at will. This makes its supply perfectly inelastic.

• The supply curve for perfectly inelastic supply is a vertical line on a graph.
• No amount of price change can increase or decrease the total quantity supplied.

This understanding is essential when analyzing markets where resources are strictly limited.

Scarcity of Land

The scarcity of land plays a pivotal role in determining its supply characteristics. Land, unlike many other economic goods, is finite and irreplaceable. Imagine trying to add more cloth to an already finished garment; it's almost impossible without altering the entire piece.

The concept of land scarcity means that there is a permanent limitation on the quantity of land available, driven by several factors:

• Natural constraints – the earth's surface area is fixed.
• Competing uses – land serves various functions like agriculture, habitation, and industry.

Due to its scarcity, the supply of land is further constrained, reinforcing the idea of a perfectly inelastic supply. Understanding this scarcity helps economists and policymakers make better decisions about land allocation and use.

Responsiveness of Supply

The term responsiveness of supply refers to how much the quantity of a good supplied changes in reaction to a change in price. In broader markets, this represents how suppliers can adjust their production based on changing prices.

However, in the context of land, the responsiveness of supply is generally minimal. This is because:

• Land cannot be increased in production like manufactured goods.
• The existing quantity of land remains unchanged regardless of economic conditions.

In most cases, if supply is responsive, it can be labelled as elastic. But here the inelastic nature of land's supply is noticeable, highlighting its unique economic properties. Having this insight helps one understand why real estate prices, for example, may not fall significantly even with a decrease in demand.