Land | ICSE Class 10 Economics Notes

This note covers the meaning and characteristics of land as a factor of production, the meaning of productivity of land, and the factors that affect the productivity of land, with worked examples, a comparison table, exam-style questions and a glossary.

What is land as a factor of production?

In economics, land does not mean only the soil on which crops grow. It means all the free gifts of nature that are used in production.

This includes the surface of the earth, the soil, rivers, lakes, seas, forests, minerals, ores, climate, rainfall, sunshine and even the wind and the sea.

Land is one of the four factors of production, the others being labour, capital and the entrepreneur. Each factor has its own reward: land earns rent, labour earns wages, capital earns interest and the entrepreneur earns profit.

Land is a natural factor: it is not made by human beings. A farmer who cultivates cotton depends mainly, but not entirely, on natural factors like rainfall, sunshine and climate. The product of this activity, cotton, is a natural product.

In the same way, minerals and ores are natural products. When a good is produced by exploiting natural resources, the activity belongs to the primary sector, and land is the factor that makes it possible. Dairy, fishing and forestry are also primary activities because they depend directly on natural resources.

Definition: Land means all the free gifts of nature, such as soil, water, forests, minerals, climate and rainfall, that are used in production and are not made by human beings.

Because land is the base on which all other production rests, it is called the primary factor. Without land there would be no raw material for factories and no space for offices, roads or houses.

The supply of land is fixed by nature, so its price (rent) is determined by demand rather than by cost of production. A factory owner who needs a site near a port will pay a high rent, not because the land cost more to produce, but because many buyers want that location.

Land also differs from the other factors in that it exists whether or not anyone uses it. Labour must be offered for work, capital must be saved and invested, and an entrepreneur must come forward to organise production. Land simply is there, a gift of nature waiting to be used.

What are the main characteristics of land?

Land has certain features that no other factor of production shares. These features explain why land is treated as a separate factor in economics.

Free gift of nature

Land is not produced by human effort. Its supply cannot be increased by manufacturing more of it. Human beings can improve the quality of land by irrigation or fertiliser, but they cannot create new land.

Fixed supply

The total quantity of land available in a country is fixed. It cannot be increased or decreased like the supply of labour or capital. This is why land is said to have an inelastic supply. Even a very high rent cannot call forth more land, though it may bring idle land into use.

Original and indestructible powers

Land has certain original powers, such as the fertility of the soil, that cannot be destroyed by human use, though they can be exhausted by careless farming. This idea is associated with the classical economist Ricardo.

Immobile

Land cannot be moved from one place to another. A plot in one village cannot be shifted to a city. Its location therefore matters greatly: land near a market, a road or a river is more valuable than land far away. Land lacks geographical mobility, but it can be shifted between uses: a field can switch from wheat to sugarcane, or be sold as a factory site.

Different levels of fertility

Not all land is equally fertile. Some plots give a larger output than others with the same labour and capital. This difference in fertility is the basis of differential rent.

Subject to diminishing returns

If more and more labour and capital are applied to the same plot of land, the extra output from each additional unit eventually falls. This is the law of diminishing returns, which applies mainly to land.

Note: Land is called a free gift of nature, but it is not free in the market. A farmer must pay rent to use a plot, and a factory must pay for the site on which it is built.

These characteristics are connected. Because land is fixed in supply and cannot be moved, its owners can charge rent that depends on location and fertility. Because extra doses of labour on a fixed plot yield less and less, farmers must be careful about how intensively they cultivate.

What is meant by productivity of land?

Productivity of land means the amount of output obtained from a given piece of land. It is usually measured as output per unit of land, for example the number of quintals of wheat harvested from one hectare.

When the same plot yields more output with the same effort, its productivity has risen. A quintal is 100 kilograms, and a hectare is a metric unit of area equal to 10,000 square metres.

Definition: Productivity of land is the quantity of output produced from a given area of land, usually measured as output per hectare.

Productivity is not the same as total production. A large farm may produce more in total than a small farm, but its productivity per hectare may be lower. Economists therefore compare output per unit of land, not total output, when they speak of productivity.

Productivity of land matters because land is in fixed supply. If a country cannot add to its land, the only way to grow more food is to raise the output from the land it already has.

Higher productivity means more food, more raw material for industry and higher incomes for farmers. It also means that fewer people are needed to grow the same crop, so some workers can move to other activities.

Productivity can be raised in two broad ways: by using more inputs such as water, fertiliser and better seeds on the same land, or by using the existing inputs more efficiently through better methods and timely operations.

What factors affect the productivity of land?

Many factors decide how much a plot of land will yield. Some are natural, some are the result of human effort, and some depend on the government and the market.

Natural factors

The fertility of the soil, the amount and timing of rainfall, the climate, sunshine and the slope of the land all affect output. Land that depends only on rain is less productive than land that is irrigated.

A small farmer owning about two hectares of unirrigated land, dependent only on rain and growing crops like jowar and arhar, gets a lower yield than a farmer with assured water.

Irrigation

Water is one of the most important factors. If a well is constructed or a canal is dug, a farmer can take a second crop in the rabi season. Irrigation raises output per hectare directly and also reduces the risk of crop failure.

Use of modern inputs

Seeds, fertilisers, pesticides, agricultural equipment and pumpsets to draw water all raise productivity. A farmer who cannot afford these inputs will get a lower yield. If the price of fertilisers or pumpsets goes up, the cost of cultivation rises and profits are reduced, which may discourage their use.

Credit and finance

A poor farmer may have to borrow from moneylenders at a high rate of interest. If a local bank gives credit at a reasonable rate of interest, the farmer can buy inputs in time and cultivate the land properly. Cheap agricultural credit is therefore a factor in productivity.

Transport and storage

If the government invests in transportation and storage of crops, or makes better rural roads so that mini-trucks reach everywhere, farmers can grow and sell more.

A cold storage lets farmers store potatoes and onions and sell them when the price is good. Without such facilities, produce may be wasted and the farmer may be forced to sell at a low price soon after harvest.

Size of holdings and fragmentation

Very small and scattered plots make it difficult to use machines or to irrigate efficiently. The NCERT Class 10 Economics textbook notes that nearly 80 per cent of rural households in India are in the small and marginal farmer category, and their small holdings limit the productivity they can achieve.

Technology and farming methods

New methods of farming, better crop rotation and the use of improved implements raise output. Historically, as methods of farming changed and the agriculture sector began to prosper, it produced much more food than before.

Government policy and support

Support for timely delivery of seeds, agricultural inputs, credit, storage facilities and marketing outlets raises productivity. Setting up agro-based mills, procurement of food grains by the government at a fair price, and construction of canals are all measures that help.

No single factor works alone. A farmer with good soil but no water, or with water but no credit to buy seed, will still get a poor yield. Productivity is the result of several factors acting together.

How does land differ from the other factors of production?

Land is compared with labour, capital and the entrepreneur in the table below. The comparison shows why land is treated separately in the theory of production.

The table makes clear that land is the only factor whose supply is fixed by nature. This is why the reward for land, rent, is determined mainly by demand, while the reward for labour, wages, is influenced by the supply of workers as well.

Land is also the only factor that is completely immobile. A machine can be carried to another factory and a worker can move to another town, but a field cannot be moved. This is why the location of land matters so much for its value.

Finally, land is the only factor whose powers are original. Fertility, climate and mineral deposits exist without human effort, while capital is always the result of past saving and production.

How can the productivity of land be raised?

Since the supply of land is fixed, raising productivity is the main way to increase agricultural output. The measures below follow from the factors discussed earlier.

1. Provide irrigation through wells, canals and dams so that farmers can take a second crop.
2. Ensure timely supply of seeds, fertilisers, pesticides and equipment at reasonable prices.
3. Give cheap agricultural credit through banks so that farmers do not depend on moneylenders at high interest.
4. Build rural roads and storage facilities, including cold storage, so that produce reaches the market in good condition.
5. Set up agro-based mills and processing units in semi-rural areas so that farmers get a market for their crops.
6. Encourage procurement of food grains by the government at a fair price so that farmers are not forced to sell cheaply soon after harvest.
7. Consolidate small and scattered holdings so that machines and irrigation can be used efficiently.
8. Spread knowledge of improved farming methods and crop rotation among farmers.

These measures work together. A well without credit may not be built; a good crop without roads may not reach the market; and a market without a fair price may not reward the farmer. Productivity therefore depends on a combination of natural conditions and human effort.

What are the limitations on raising the productivity of land?

Raising productivity is not always easy. Several limitations stand in the way, especially for small and poor farmers.

Fixed supply of land

No amount of effort can increase the total land available. Productivity can rise only by using the existing land better.

Law of diminishing returns

If more and more labour and capital are applied to the same plot, the extra output from each additional unit eventually falls. Beyond a point, adding workers to a small plot does not raise output at all.

This is why five members of a family working on a two-hectare plot may each be doing some work but none is fully employed.

Cost of inputs

If the price of fertilisers or pumpsets goes up, the cost of cultivation rises and profits are reduced. A poor farmer may then be unable to use enough inputs.

Lack of credit

A farmer who cannot get cheap credit may have to borrow from moneylenders at a high rate of interest, which eats into the gain from higher output.

Small and fragmented holdings

Nearly 80 per cent of rural households in India are small and marginal farmers. Small plots make it hard to use machines, irrigation and modern methods efficiently.

Dependence on rainfall

Land that depends only on rain is risky. A poor monsoon can wipe out the gain from other inputs.

Why is land important for the economy as a whole?

Land is the base of the primary sector, which includes agriculture, dairy, fishing and forestry. In India, more than half of the workers in the country work in the primary sector, mainly in agriculture. The productivity of land therefore affects the incomes of a very large number of people.

Land also supplies raw materials to industry. Cotton from the field is spun into yarn and woven into cloth; sugarcane becomes sugar or gur; earth is converted into bricks for houses. If land yields more, factories get more raw material and the secondary sector grows.

Agriculture also supports the tertiary sector. Goods produced on land must be transported by trucks or trains, stored in godowns, bought and sold in wholesale and retail shops, and financed by banks. A rise in farm output therefore raises demand for transport, storage, trade and banking.

The lesson for policy is clear. Since land cannot be expanded, the incomes of farm families can rise only if output per hectare rises or if some workers move to other sectors. Both routes depend on the productivity of land.

Going beyond the syllabus

Land is the only factor of production whose supply is fixed by nature, and this single fact explains most of the economics built around it. Because the supply cannot grow, the price of land (rent) is set by demand, and because the area is fixed, extra doses of labour and capital on the same plot must eventually yield less and less.

This is why economists treat improvements in the quality of land, such as irrigation, drainage and soil conservation, as a form of investment. Such spending does not add to the quantity of land, but it raises the output from every hectare and so acts like an increase in the factor itself.

It also explains why the location of land carries a value of its own. Two plots of the same size and fertility can earn very different rents if one is near a road or a market and the other is far away, because the immobility of land makes location a permanent advantage or disadvantage.

How do inputs and outputs on land work in practice?

The effect of inputs on output can be seen with simple numbers. Suppose a farmer has two hectares of unirrigated land. Without irrigation, the land gives one crop a year.

If a well is constructed, the farmer can take a second crop, wheat, in the rabi season. One hectare of wheat can provide employment to two people for 50 days, including sowing, watering, fertiliser application and harvesting.

Worked example 1. A farmer has 2 hectares of unirrigated land that yields 15 quintals of jowar per hectare in one season.

After a well is built, the farmer grows wheat on the same 2 hectares in the rabi season, with a yield of 20 quintals per hectare.

What is the total output before and after irrigation, and by how much has it risen?

Answer: Before irrigation, output = 2 hectares × 15 quintals = 30 quintals. After irrigation, jowar output stays at 30 quintals and wheat adds 2 × 20 = 40 quintals, so total output = 30 + 40 = 70 quintals.

The rise in output = 70 − 30 = 40 quintals, which is more than double the earlier output. Irrigation has raised the productivity of the same land.

The example shows why irrigation is treated as a major factor. The land has not increased, but its productivity has, because a second crop is now possible.

Worked example 2. A farmer grows cotton on 4 hectares. Without fertiliser the yield is 8 quintals per hectare. With fertiliser costing ₹1,200 per hectare, the yield rises to 11 quintals per hectare. If cotton sells at ₹5,000 per quintal, should the farmer use fertiliser?

Answer: Extra output per hectare = 11 − 8 = 3 quintals. Extra revenue per hectare = 3 × ₹5,000 = ₹15,000. Extra cost per hectare = ₹1,200. Net gain per hectare = ₹15,000 − ₹1,200 = ₹13,800.

For 4 hectares the net gain = 4 × ₹13,800 = ₹55,200. The farmer should use fertiliser, because the extra revenue is far greater than the extra cost.

Both examples use the same idea: productivity is measured per hectare, and a change in productivity is measured by the change in output per hectare, not by the change in total output alone.

Worked example 3. A village has 100 hectares of unirrigated land yielding 12 quintals of rice per hectare. A canal is dug at a cost of ₹8,00,000 and the yield rises to 18 quintals per hectare.

If rice sells at ₹1,500 per quintal, in how many years will the extra output cover the cost of the canal?

Answer: Extra output per hectare = 18 − 12 = 6 quintals. Extra output for the village = 100 × 6 = 600 quintals. Extra revenue per year = 600 × ₹1,500 = ₹9,00,000. Cost of the canal = ₹8,00,000.

The extra revenue in one year (₹9,00,000) already exceeds the cost (₹8,00,000), so the canal pays for itself in less than one year. The village should build the canal.

Worked example 4. A farmer applies 1, 2, 3 and 4 units of labour to one hectare of land and gets outputs of 10, 18, 24 and 28 quintals. Find the marginal output of each extra unit of labour and state what it shows.

Answer: Marginal output of the first unit = 10 quintals. Of the second = 18 − 10 = 8 quintals. Of the third = 24 − 18 = 6 quintals. Of the fourth = 28 − 24 = 4 quintals.

Each extra unit of labour adds less output than the one before (10, 8, 6, 4). This shows the law of diminishing returns: on a fixed plot of land, extra labour eventually yields smaller and smaller additions to output.

The farmer should not keep adding labour beyond the point where the extra output is worth the extra wage.

Land, employment and output

At the same time, the share of agriculture in total production has fallen over time. According to the NCERT Class 10 Economics textbook, more than half of India's workers work in the primary sector, but they produce only about one sixth of the gross value added.

This gap between the share in employment and the share in output shows that there are more people in agriculture than is necessary, a situation called underemployment.

Glossary

• Land: All free gifts of nature used in production, including soil, water, forests, minerals and climate.
• Productivity of land: The quantity of output obtained from a given area of land, usually output per hectare.
• Rent: The reward paid for the use of land as a factor of production.
• Primary sector: Activities that produce goods by directly using natural resources, such as agriculture, dairy, fishing and forestry.
• Secondary sector: Activities in which natural products are changed into other forms through manufacturing.
• Tertiary sector: Activities that support production, such as transport, storage, communication, banking and trade.
• Irrigation: Supplying water to land through wells, canals or dams so that crops can grow.
• Diminishing returns: The tendency of each extra unit of labour or capital on a fixed plot to add less output than the one before.
• Underemployment: A situation where people appear to be working but are made to work less than their potential.
• Gross value added (GVA): The value of a sector's output minus the value of the inputs used up in producing it.
• Small and marginal farmers: Farmers with very small holdings, who form nearly 80 per cent of rural households in India.
• Cold storage: A facility that lets farmers store produce such as potatoes and onions and sell when the price is good.

Common errors and misconceptions

• Misconception: Land means only the soil on which crops are grown. Correct: Land includes all free gifts of nature, such as water, forests, minerals, climate and rainfall.
• Misconception: Productivity of land means total output. Correct: Productivity means output per unit of land, usually per hectare, not total output.
• Misconception: The supply of land can be increased if the price of land rises. Correct: The supply of land is fixed by nature and is inelastic; a higher price does not create more land.
• Misconception: Land is free because it is a free gift of nature. Correct: Land is a free gift of nature, but its use commands rent in the market.
• Misconception: Adding more labour to a plot always raises output in proportion. Correct: Beyond a point, each extra worker adds less output, which is the law of diminishing returns.
• Misconception: Irrigation is the only factor that affects productivity. Correct: Fertilisers, seeds, credit, transport, storage, technology and government support all affect productivity.
• Misconception: A large farm always has higher productivity than a small farm. Correct: A large farm may have higher total output but lower output per hectare than a well-managed small farm.

Exam-style questions with model answers

Q1. Define land as a factor of production. [2 marks]

1. Land means all the free gifts of nature that are used in production.
2. It includes the soil, rivers, forests, minerals, climate and rainfall, and is not made by human beings.

Q2. State any two characteristics of land. [2 marks]

1. Land is a free gift of nature and its supply is fixed.
2. Land is immobile, so its location matters for its value and use.

Q3. What is meant by productivity of land? [2 marks]

1. Productivity of land is the amount of output obtained from a given piece of land.
2. It is usually measured as output per hectare, so it shows how well a plot is being used.

Q4. Explain any three factors that affect the productivity of land. [3 marks]

1. Irrigation: a well or canal lets the farmer take a second crop and raises output per hectare.
2. Modern inputs: seeds, fertilisers, pesticides and pumpsets raise yield, but their high price can reduce profits.
3. Credit: cheap bank credit lets a poor farmer buy inputs in time instead of borrowing from moneylenders at high interest.

Q5. Distinguish between land and capital as factors of production. [4 marks]

1. Land is a free gift of nature, while capital is made by human beings, such as machines and tools.
2. The supply of land is fixed and inelastic, while the supply of capital can be increased by saving and investment.
3. Land is immobile and cannot be shifted, while capital can be moved and sold.
4. The reward for land is rent, while the reward for capital is interest.

Q6. Explain how the size of holdings, credit, transport and government policy affect the productivity of land. [4 marks]

1. Size of holdings: very small and scattered plots make it difficult to use machines or to irrigate efficiently, so output per hectare stays low.
2. Credit: a farmer who borrows from moneylenders at a high rate of interest cannot buy inputs in time, while cheap bank credit lets the land be cultivated properly.
3. Transport and storage: rural roads and cold storage let farmers sell produce at a good price instead of wasting it, which encourages them to grow more.
4. Government policy: timely supply of seeds and inputs, procurement of food grains at a fair price and the construction of canals all raise the productivity of land.

Q7. Explain any five characteristics of land. [5 marks]

1. Free gift of nature: land is not produced by human effort; people can improve its quality but cannot create new land.
2. Fixed supply: the total quantity of land in a country cannot be increased, so its supply is inelastic.
3. Original and indestructible powers: the fertility of the soil cannot be destroyed by use, though careless farming can exhaust it.
4. Immobile: land cannot be moved from one place to another, so its location affects its value.
5. Different levels of fertility: some plots give more output than others with the same labour and capital, which is the basis of differential rent.

Q8. "The supply of land is fixed, yet the productivity of land can be raised." Explain this statement with reference to irrigation, credit and transport. [5 marks]

1. The total quantity of land is fixed by nature and cannot be increased, so output can grow only by raising output per hectare.
2. Irrigation through wells and canals allows a second crop in the rabi season, raising output from the same plot.
3. Cheap credit from banks lets a farmer buy seeds, fertilisers and pumpsets in time instead of borrowing at high interest.
4. Better rural roads and cold storage let farmers sell their produce at a good price instead of being forced to sell soon after harvest.
5. Together these measures raise the productivity of the existing land, which is the main way to increase agricultural output when land itself cannot be expanded.

Key takeaways

• Land means all free gifts of nature used in production, not only the soil on which crops grow.
• Its supply is fixed and inelastic, and it cannot be moved from place to place, so location matters.
• Productivity of land means output per unit of land, usually output per hectare, not total output.
• Irrigation, modern inputs, credit, transport and storage all raise the productivity of land.
• Small and scattered holdings and high input costs limit the productivity a farmer can achieve.
• The law of diminishing returns applies mainly to land because its supply is fixed by nature.
• Land supports the primary sector, supplies raw material to industry and creates demand for services.
• More than half of India's workers are in the primary sector, producing only about one sixth of gross value added.

Test yourself

Why is land called a free gift of nature?

Because land is not made by human beings. Its supply comes from nature and cannot be manufactured or increased by human effort.

What is the reward for land called?

The reward for land is rent. It is paid by the user of land to the owner for its use in production.

Name two natural factors that affect the productivity of land.

The fertility of the soil and the amount and timing of rainfall. Climate and sunshine also affect output.

How does irrigation raise productivity?

Irrigation supplies water through wells or canals, so the farmer can take a second crop in the rabi season and get more output from the same land.

What is the law of diminishing returns?

It states that when more units of labour and capital are applied to a fixed plot of land, the extra output from each additional unit eventually falls.

Why is cheap agricultural credit important for productivity?

A poor farmer cannot afford seeds, fertilisers and pumpsets. Cheap bank credit lets the farmer buy these in time instead of borrowing from moneylenders at high interest.

How does transport affect the productivity of land?

Better rural roads and transport let farmers move produce to the market quickly, so they can grow and sell more without waste.