Land as a Factor of Production


Welcome to class! 

In today’s class, we will be talking about land as a factor of production. Enjoy the class!

Land as a Factor of Production

At the end of the lesson, you should be able to;

  • Analyse Land as a Factor of Production
  • Identify and explain the characteristics of land and natural resources found on it and the uses
  • Justify the effect of the law of diminishing returns on land



This is nature`s contribution to production. As a free gift of nature and its reward is rent. Land is a free gift of nature which refers to all those resources that are purely provided by nature but are utilized by a man during the production process. It includes all resources not made by man e.g. land, sea, river, animals, minerals resources, crude oil, gold, diamond etc. Land is said to be a passive factor for it is useless without the application of human effort

  1. Land is a free gift of nature.
  2. It is geographically immobile.
  3. It is relatively indestructible.
  4. It has no production cost.
  5. Its quality and value vary with its location.
  6. It is subject to the law of diminishing returns.
The law of diminishing returns

This law is also called the law of variable proportions and it states that as more and more units of a variable factor (LABOUR) are applied to one or more fixed factor (LAND), output might initially increase significantly but after a point increasing use of such variable factor will yield less than proportionate returns and output will begin to fall.

This Law is highly applicable to the agricultural and industrial sector of the economy in particular.

Law of diminishing returns table
Unit of Land               ( Fixed factor ) No of Men Employed  (Variable factor) Total Product Average Product Marginal Product
4 Hectares 1 15 15 15
4 Hectares 2 32 16 17
4 Hectares 3 54 18 22
4 Hectares 4 72 18 18
4 Hectares 5 85 17 13
4 Hectares 6 90 15 5
4 Hectares 7 84 12 -6

When one labour is employed to work on a one-hectare farm, 15 tons of yams are produced. As more and more labour is employed in every successive round of production, the total output continues to increase from 15 to 32 to 54 to72 and so on. But as the seventh (7th) labour is employed, there is a drop in production from 90 t0 84.

In like manner, the MP increases as more labour are employed up to the fourth (4th) labour where the MP drops to 18 from 24 and becomes negative at the seventh (7th) labour.

Merits of the law of diminishing returns
  1. It helps to enhance the proper combination of factors of production.
  2. It helps the entrepreneur to change the scale of production through the variation of the quantities of all inputs.
  3. It ensures efficiency, productivity and high profitable level in the production process.
  4. It helps to prevent waste of resources resulting in reduced and minimum cost of production.
  5. It helps a producer to know when to stop adding more variable factors into fixed factors to obtain maximum outputs.


  1. Define the law of diminishing returns.
  2. List five merits of the law of diminishing returns.
Importance of land to economic activities
  1. Agricultural activities providing food for consumption and raw materials for industrial and exports take place on land.
  2. It provides areas for forestry and wildlife resources.
  3. It aids production because it is on it that firm, Individual and government built factories, schools, hospitals roads etc.
  4. A different mineral resource such as crude oil, gold, coal, etc is derived from land.
  5. Bodies of water such as rivers, lakes and sea which are part of the land area are used for transportation purposes which aid foreign trade.
  6. It is the host of other factors of production in bringing about meaningful productive activities.


  1. What are the economic benefits of land?
  2. List the agents/factors of production and give their rewards.

Reading assignment

  1. Amplified and simplified Economics for SSS by Femi Longe Chapter 4 Pages 43-44
  2. Comprehensive Economics for SSS By. J.U. Ampele Chapter 4 Pages 93 – 96
  3. Fundamentals of Economics for SSS By. R.A.I. Anyanwuocha Chapter 4 Pages 22 – 26
General evaluation
  1. Highlight the basic concept in Economics
  2. Outline at least five characteristics of science used by economics in its field.
  3. Why is Economics a science?
  4. State three career prospect for the study of economics.
  5. State the branches of Economics.
  6. Define land as a factor of production.
  7. Define the law of variable proportions.


In our next class, we will be talking about Labour as a Factor of Production.  We hope you enjoyed the class.

Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

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