Answer Happy

2. In 1965 John Floyd argued in a Journal of Political Economy article that the benefits of farm programs were capitalized into the land price (and thus rental rates.) Use the diagrams below to explain how land, characterized here with perfectly inelastic supply, and other factors (and other intermediate inputs) with more elastic supply have different outcomes when commodity prices are raised as a result of program benefits: (Dx = MVPx = MPx. Py Where Dx is the derived demand for input x equal to MVP, the marginal value product of x. The marginal value product of the input is equal to its marginal physical product in the production of output Y times the output price.) land Other inputs MVP, = MP, Py MVPX = MPx • Py Quantity land Quantity other inputs a. Why is land supplied less elastically than other inputs? b. What causes the marginal value product of the inputs to increase? C. Why does the price of land rise compared to that of other inputs?