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What Determines Land Values

What Determines Land Values. Comprehending the nature of the forces at work, helps to anticipate effects of economic and social changes. 2-1. Objectives. Economic forces form land values Land receives residual from production Location determines land values

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What Determines Land Values

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  1. What Determines Land Values • Comprehending the nature of the forces at work, helps to anticipate effects of economic and social changes 2-1

  2. Objectives • Economic forces form land values • Land receives residual from production • Location determines land values • Productivity ultimately sets value • Anticipate effects of changes on value 2-2

  3. Basic Ingredients of Land Value • Economic concepts of land • Land underlies all human activities • Economic rent • Potential of the land • Contract rent 2-3

  4. Land, Takes What is Left • Labor and capital with land • Varied employment opportunities • Sales of agricultural products • 1970’s - Profits to farmers soared • Production-based land values • Pattern of land values and uses 2-4

  5. Prisoner of Its Location • Unique Characteristics of environment • Locations endows unique capabilities • Transportation costs • Familiarity with local area • Market value potential • Regional element of land value 2-5

  6. Group Discussion 2-6

  7. Module 2 - Review • Understand the economic forces that form land values and establish observed patterns of land use • Endowment of natural resources • Economic rent is net return or quantified summary of productive potential 2-7

  8. Module 2 - Review • Explain why land receives the residual revenue after other factors are paid • Can migrate to other uses • Farmers and ranchers must pay the going wage and market cost • Land is immobile 2-8

  9. Module 2 - Review • Understand how location influences land values • Transportation costs • Rent declines with distance from market • Communities compete 2-9

  10. Module 2 - Review • Explain why productivity ultimately sets the value of truly agricultural land • Depends on value of activity or • marketed products less all costs 2-10

  11. Module 2 - Review • Anticipate how social and economic changes will affect land values • By understanding economic forces • economic shifts can be rigorously analyzed 2-11

  12. Self-Assessment Questions • Economic rent is • Location affects land value because • The extent of the stock of marginal land in production • In the 1970’s, previously submarginal land was broken out of grazing and put into crop reduction. This occurred because 2-12

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