Land and capital are two important factors of production which are used by all companies and if you are an economic student than you must have encountered both the terms very early in your study, however, both these terms are completely different from each other and have different use as far as the company is concerned. In order to know more about both factors of production one should look at some of the differences between land and capital –
Land VS Capital
Permanency Factor
In the case of land, it is a permanent factor of production implying that it will remain the same forever only the owner of the land will change along with the use to which the land is put while as far as capital is concerned it not a permanent factor of production implying that its form keeps changing according to situation and reason for which it’s used.
Difference in Value
Land value changes according to its use and location and that is the reason why land which is situated in urban areas have higher value and rental income attached to them as opposed to land located in rural areas but when it comes to the capital it is not the case as the value of capital will remain the same at all places the only thing that matter as far as capital is concerned is the return earned on the invested capital.
Elastic and Inelastic Supply
The supply of land is inelastic implying that no matter how much the price of land is increased its supply will not increased as it has limited supply and is fixed while when it comes to capital its supply is elastic in the sense when one is offered a good rate of return he or she will be willing to increase the supply of capital and vice versa.
Mobility
The land is an immovable asset as one cannot move land from one place to another no matter how profitable it to move while as far as capital is concerned it has high mobility in the sense that it can move quickly from one place to another in search of good returns. In simple words just like a landline phone can be used at home only in the same way land can be used at a place at which it is situated while capital is like a mobile phone just like a mobile phone can be carried easily anywhere in the same way capital can be carried anywhere.
Return
In the case of land, the owner of the land gets rent or appreciation in the cost of land as a return while as far as capital is concerned the owner of the capital gets the interest from the person using the capital. In simple words, if you are the owner of the land you will get rent as your reward while if you are the owner of capital you will get interest as your reward.
Consistency
When it comes to land it is not consistent in the sense that every land will be different whether its fertility factor, soil factor or location factor but as far as capital is concerned it is very consistent in the sense that it remains the same for all purposes hence whether the capital is used in the manufacturing sector or service sector or any other sector the form of capital will not change.
As one can see from the above that although land and capital both are factors of production but both of them are miles apart from each other when it comes to their use, meaning, or characteristic and that is the reason why a company should keep in mind the above differences use both factors of production judiciously.