Land in its economic sense is a resource provided by nature and therefore, its supply is fixed. A price must be paid to owners of land to obtain its use but it is not a compensation necessary to overcome real costs. This price is known as land rent or to economists simply as "rent". Land rents as with any other price is determined by supply and demand curves but the amount supplied is fixed by nature. See diagram below:


Because supply is fixed, the supply curve must be vertical. If the demand for land increases as shown by the shift from curve D to D' the price will increase but the amount supplied will remain the same. When a factor cannot readily respond to market demands it is inelastic. Both the supply of land and buildings are inelastic because the supply of land cannot be increased and because of the long lead time required to build buildings.

See economic rent

See location