supply changes slowly. Each year, the stock of capital goods is diminished
by the amount that becomes physically or economically obsolete (called
depreciation) and is increased by the amount of new investment. But the
stock of capital is so large that even when there is an investment boom
the percentage change in the stock of capital will be tiny. On balance, the
trend has been for the capital stock to grow from decade to decade over
the past few centuries. As we will see in Chapter 15 , changes in
business conditions, including the market interest rate, cause important
changes in investment in physical capital.
Land
“Land” as a factor of production includes all that nature provides,
including land, water, forests, minerals, as well as sunlight and wind.
While it may appear at first that the supply of such resources is fixed,
their supply as factors of production can be quite variable. For example,
when geologists discover a new vein of gold in a mountainside, the
supply of gold increases. And if arable land is not cared for, its suitability
for growing crops can easily be destroyed and its supply reduced. In
contrast, irrigation and land reclamation can increase the supply of arable
land. In general, changes in the market environment, including
fluctuations in agricultural prices, can lead to important changes in the
supply of land.
Labour