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Chapter 18 – The Land Market and Natural Resources

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Presentation on theme: "Chapter 18 – The Land Market and Natural Resources"— Presentation transcript:

1 Chapter 18 – The Land Market and Natural Resources

2 Fixed supply of land (to all uses)
The supply of land to all uses is fixed

3 Fixed supply of land (to all uses)
The supply of land to all uses is fixed Owners receive economic rent

4 Land supply to a given use
The supply of land to a given use is upward sloping

5 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.)

6 Renewable and nonrenewable resources
nonrenewable resources (also known as exhaustible resources) have a finite supply that is depleted as the resource is consumed

7 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

8 Equilibrium price of a nonrenewable resource

9 Price of a nonrenewable resource over time

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

11 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

12 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

13 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

14 Renewable resources

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