Forms of Differential Ground Rent
Suppose for example that the ruling world market price for quality wheat is US$170 per ton f.o.b. Even if two investors have the exactly same amount of capital to invest in wheat production, the economics of producing wheat at that price are going to be quite different, depending on the actual yields (the productivity) of the land they use. The same amount of money invested in wheat production on area A yields a bigger crop of wheat and more profit than on area B, if A is more productive, fertile, better situated etc. than B.
But not only that – given a known yield per hectare and a known price per ton of wheat, it may be either economic or uneconomic to produce wheat on particular soils. There exists a “hierarchy of soil types”, and if market demand and prices rise, more of the less productive (or marginal) land may be cultivated; if demand and prices fall, less of the marginal land may be cultivated.
Read more about this topic: Differential And Absolute Ground Rent
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