Land Use Model

Land Use Model

Price of land represents a capitalization for expected rents. As price goes up, so does the rent for the land. The maximum rent per acre of course depend upon local sites, accessibility, nearness to central business districts, zoning regulations, and other relevant factors. Rents may show a peak at CBD and gradually tapers off, as the distance from CBD tends to increase.

Economic rent is usually defined as the difference between the payment actually received by the owner of the land and its reservation price, which is the minimum amount necessary to induce him to employ it in its current use. Suppose a landlord does not like to rent a flat if he does not get at least $100 per month. Let he is offered $125 for this unit. Rent= ($25). It is same as TR-TVC or producer’s surplus.

Fig.1

When supply is elastic perfectly, the surplus is reduced to zer and rent is nil. By contrast when supply is completely inelastic, all payment for the unit is the rent. Thus rent tends to rise, as the supply of the input, such as, land becomes more inelastic and vice versa.

Von Thunen's Regional Land Use Model

If modern economics began with Adam Smith, modern location economics began with Von Thunen (1826). He was the first to develop a basic analytical model of the relationships between markets, production, and distance. For this purpose he looked upon the agricultural landscape. The relative costs of transporting different agricultural commodities to the central market determined the agricultural land use around a city. The most productive activities will thus compete for the closest land to the market and activities not productive enough will locate further away. The model has a set of basic assumptions, which reflects agricultural conditions around a city in the early 19th century:

Isolation. There is one isolated market in an isolated state having no interactions...