Land values are relative to marginal land

Tags: economics

Marginal land is land that farmers can cultivate rent-free [1]. All other land values are relative to the marginal land. If the current marginal land all becomes cultivated, then there will be new (less productive) marginal land, causing the rents on the previous marginal land and all other land to rise as well.

This is an important economic concept as it does not apply solely to land: "marginal land" represents the value of production for a new entrant into any particular market. As more competitors enter the market, the value of marginal land becomes worse and worse and the scarcity power of the "good land" becomes higher and higher. In these cases, scarcity power yields high profits.

References

  1. Harford, Tim. The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor--and Why You Can Never Buy a Decent Used Car! Oxford ; New York: Oxford University Press, 2006.