Economic Aspects (Cont.)

Ricardo Theory 1817

The type of farming found in an area will depend on either: The rent asked by the landlord (in the case of a tenant farmer) Or b) The purchase price of the land (for an owner-occupier)

The rent asked by the landlord (in the case of a tenant farmer)

Or

b) The purchase price of the land (for an owner-occupier)

The Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal (i.e., the best rent-free) land for the same purpose, given the same inputs of labor and capital.

The Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal (i.e., the best rent-free) land for the same purpose, given the same inputs of labor and capital.

In other words…. Agricultural land values are affected by: Local population density Land quality

Agricultural land values are affected by:

Local population density

Land quality

Von Thunen

Let me take you back to.. 1820s Baltic Germany A backward and isolated part of the country Devastated by war

1820s

Baltic Germany

A backward and isolated part of the country

Devastated by war

Johann von Th ü nen Farmed 400 hectares on the Baltic coast o of Germany Published book “The Isolated State” in 1826 Based on his home area which had only just introduced ideas such as crop rotation, and was remote. Transport was slow, difficult and expensive.

Farmed 400 hectares on the Baltic coast o of Germany

Published book “The Isolated State” in 1826

Based on his home area which had only just introduced ideas such as crop rotation, and was remote. Transport was slow, difficult and expensive.

CRITIQUE As we go through, spot the flaws in Von Thunen’s model (particularly those where modern trends have rendered the original assumptions redundant…)

As we go through, spot the flaws in Von Thunen’s model (particularly those where modern trends have rendered the original assumptions redundant…)

Model (assumptions…) Decision making is in the hands of farmers, who are rational economic men/women. Their goal is to maximise profits. They have perfect knowledge of the market The area farmed is an isolated state which is completely self-sufficient

Decision making is in the hands of farmers, who are rational economic men/women. Their goal is to maximise profits.

They have perfect knowledge of the market

The area farmed is an isolated state which is completely self-sufficient

Model (assumptions…) The transport of products to markets is organised by farmers The market price for a particular product is the same for all farmers and does not vary over time The only transport is horse and cart and transport costs are proportional to distance and weight. Transport is equally easy in all directions

The transport of products to markets is organised by farmers

The market price for a particular product is the same for all farmers and does not vary over time

The only transport is horse and cart and transport costs are proportional to distance and weight. Transport is equally easy in all directions

Model (assumptions…) All farms are the same size (there are no economies of scale)

All farms are the same size (there are no economies of scale)

CROPPING MODEL With increasing distance from a central market, farmers would grow different crops, producing a concentric pattern… The LOCATIONAL RENT of each crop: the difference between the market value per hectare and the costs per hectare of cultivation and transport to market. Because rents are higher near the market, farmers will intensify their production.

£ Distance from market Profit

Critique 1 Model tells us how agricultural land SHOULD be organised rather than HOW it is actually organised. Today, we wouldn’t assume farmers to be rational – they work in a world of mixed goals and imperfect information Von Thunen’s STATIC state doesn’t exist and the changing taste in food and increases in consumer purchasing power have forced farmers to review production.

Model tells us how agricultural land SHOULD be organised rather than HOW it is actually organised.

Today, we wouldn’t assume farmers to be rational – they work in a world of mixed goals and imperfect information

Von Thunen’s STATIC state doesn’t exist and the changing taste in food and increases in consumer purchasing power have forced farmers to review production.

Critique 2 Changing technologies have revolutionised transport and reduced its impact Might expect Von Thunen to be more relevant in LEDCs

Changing technologies have revolutionised transport and reduced its impact

Might expect Von Thunen to be more relevant in LEDCs