Consider the following illustration of land rents for alternative land uses. The

Question

Consider the following illustration of land rents for alternative land uses. The farmer is the land owner and she would like to sell her land.

land use       farmer                society

ag                300                      600

housing        500                      500

land price per hectare (r = .05; PV = R/r)

ag            6000                       12000

housing   10000                       10000

What is the economically optimal land use from the farmer’s perspective? society’s? Why?

Explanation / Answer

from the farmer’s perspective, housing is the economically optimal land use because rent as welll as price per hectare is greater in case of housing so it is profitable from farmer's perspective to rent and sell land for housing.

big builders can pay higher price to farmers to grab lands from farmers so farmers find it profitable to sell for housing

whereas from society point of view , agriculture is optimal land use and rent and price per hectare is higher in case of agriculture. society nows that agriculture provides livelihood that's why they attach more value to the agriculture

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