Land & Natural Resources: Scarcity & Allocation

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  • 0:01 The Problem of Natural…
  • 1:00 Problems with Land
  • 3:37 Problems with Natural…
  • 4:57 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

This lesson explores the importance of two very unique resources to economic development: land and natural resources. It explains how land can last forever, while some natural resources can run out. That said, both require expert management.

The Problem of Natural Resources

Want an investment that is guaranteed to never lose value? How about one that, as the years go on, will only become more and more valuable? In fact, it's so rare that they can only add the tiniest of percentages every year! What we've got is effectively all we'll ever have! Better grab some before its gone!

All of what I just said probably sounds like a late night infomercial offering a sun-drenched mansion or selling the latest nutritional fad, doesn't it? However, there's one class of resource that all of that can be said about. With only a handful of exceptions, it doesn't lose value, but instead gains it. And yes, it's very difficult to create more. So once it's gone, it's gone. Curious as to what I'm talking about? Easy! It's land and natural resources. That said, while we're going to talk about them both today, each comes with completely different sets of requirements.

Problems with Land

A thousand years ago, if you asked someone in medieval Europe who owned a given piece of land, they would have given you a weird look. In their society, the king owned everything. Likewise, if you were to ask them today about the same piece of land, they'd provide a much more logical answer. Now this is the same piece of land, mind you. Sure, it's been altered through the centuries, but essentially, it's the same resource of physical space that it was when knights in shining armor were fighting over it. Remember that, because technically, that's what land is, the space to perform a given economic activity.

Now despite what you've heard, we can produce more land. No, I'm not talking about those crazy islands in Dubai or the Dutch building dikes to hold back the sea. I'm talking about adding stories to buildings. Hey, that's innovation! Also, remember that innovation can go both ways. Just as producers of land can innovate with taller buildings, so, too, can land consumers innovate with smaller requirements for land. In the past, to learn economics you'd need a massive lecture hall. Now you can do it from your phone.

Instead, what makes land a real challenge is the fact that it's really just rented. Now that may sound rather idealistic, but it's true. That medieval king may have thought that he was going to own the land forever, but clearly he didn't. This has major implications.

First of all, all land is not created equal. This is easy enough to understand, as you can't grow rice in the desert. In fact, farmland is much more inelastic in supply, meaning that one day we very well could run out without innovation. However, we can make changes to the land to make it worth more for different uses. We can take hills and terrace them to make them more useful for farmers, for example. By doing so, we delay the date that we will run out of farmland.

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